Microglia are increasingly implicated in brain pathology, particularly neurodegenerative disease, with many genes implicated in Alzheimer's, Parkinson's, and motor neuron disease expressed in microglia. There is, therefore, a need for authentic, efficient in vitro models to study human microglial pathological mechanisms. Microglia originate from the yolk sac as MYB-independent macrophages, migrating into the developing brain to complete differentiation. Here, we recapitulate microglial ontogeny by highly efficient differentiation of embryonic MYB-independent iPSC-derived macrophages then co-culture them with iPSC-derived cortical neurons. Co-cultures retain neuronal maturity and functionality for many weeks. Co-culture microglia express key microglia-specific markers and neurodegenerative disease-relevant genes, develop highly dynamic ramifications, and are phagocytic. Upon activation they become more ameboid, releasing multiple microglia-relevant cytokines. Importantly, co-culture microglia downregulate pathogen-response pathways, upregulate homeostatic function pathways, and promote a more anti-inflammatory and pro-remodeling cytokine response than corresponding monocultures, demonstrating that co-cultures are preferable for modeling authentic microglial physiology.