Astragaloside IV (AST-IV) is a major active ingredient of astragalus, with a neuroprotective effect. The current study is aimed to investigate the impact of AST-IV on the M1/M2 microglial activation in response to lipopolysaccharide (LPS) stimulation, how AST-IV attenuated microglia-mediated neuronal damage, and the molecular mechanisms underlying AST-IV’s protection of neurons against microglia-mediated neuronal damage. Our results showed that AST-IV partially protected microglia from death evoked by LPS and downregulated the release of pro-inflammatory (M1) mediators including interleukin (IL)-1β, IL-6, tumour necrosis factor α (TNF-α) and nitric oxide, as well as the expression of Toll-like receptors 4 (TLR4), MyD88, and nuclear factor κB (NF-κB) of these cells. In contrast, AST-IV elevated the production of anti-inflammatory cytokine IL-10 and expression of arginase 1, an M2 marker of microglia, whose conditioned medium promoted PC12 neurons survival. These results indicate that AST-IV exerts an anti-inflammatory effect on microglia, possibly through inhibiting TLR4/NF-κB signalling pathways, and protects neurons from microglia-mediated cell death through conversion of microglia from inflammatory M1 to an anti-inflammatory M2 phenotype.