Haploinsufficiency of progranulin (PGRN) causes frontotemporal dementia (FTD), a devastating neurodegenerative disease with no effective treatment. PGRN is required for efficient proteostasis, as loss of neuronal PGRN results in dysfunctional lysosomes and impaired clearance and cytoplasmic aggregation of TDP-43, a protein involved in neurodegeneration in FTD. These and other events lead to neurodegeneration and neuroinflammation. However, the detailed mechanisms leading to protein dyshomeostasis in PGRN-deficient cells remain unclear. We report here the development of human cell models of FTD with PGRN-deficiency to explore the molecular mechanisms underlying proteostasis breakdown and TDP-43 aggregation in FTD. Neurons differentiated from FTD patient induced pluripotent stem cells (iPSCs) have reduced PGRN levels, and the neurons recapitulate key disease features, including impaired lysosomal function, defective TDP-43 turnover and accumulation, neurodegeneration, and death. Proteomic analysis revealed altered levels of proteins linked to the autophagy-lysosome pathway (ALP) and the ubiquitin-proteasome system (UPS) in FTD patient neurons, providing new mechanistic insights into the link between PGRN-deficiency and disease pathobiology.