Extracellular proTGF-β is covalently linked to "milieu" molecules in the matrix or on cell surfaces and is latent until TGF-β is released by integrins. Here, we show that LRRC33 on the surface of microglia functions as a milieu molecule and enables highly localized, integrin-αVβ8-dependent TGF-β activation. Lrrc33 mice lack CNS vascular abnormalities associated with deficiency in TGF-β-activating integrins but have microglia with a reactive phenotype and after 2 months develop ascending paraparesis with loss of myelinated axons and death by 5 months. Whole bone marrow transplantation results in selective repopulation of Lrrc33 brains with WT microglia and halts disease progression. The phenotypes of WT and Lrrc33 microglia in the same brain suggest that there is little spreading of TGF-β activated from one microglial cell to neighboring microglia. Our results suggest that interactions between integrin-bearing cells and cells bearing milieu molecule-associated TGF-β provide localized and selective activation of TGF-β.