Accumulating evidence shows that neuroinflammation substantially contributes to the pathology of depression, a severe psychiatric disease with an increasing prevalence worldwide. Although modulating microglial phenotypes is recognized as a promising therapeutic strategy, effective treatments are still lacking. Previous studies have shown that luteolin (LUT) has anti-inflammatory effects and confers benefits on chronic stress-induced depression. In this study, we investigated the molecular mechanisms by which LUT regulates the functional phenotypes of microglia in mice with depressive-like behaviors. Mice were exposed to chronic restraint stress (CRS) for 7 weeks, and were administered LUT (10, 30, 40 mg· kg ·day, i.g.) in the last 4 weeks. We showed that LUT administration significantly ameliorated depressive-like behaviors and decreased hippocampal inflammation. LUT administration induced pro-inflammatory microglia to undergo anti-inflammatory arginase (Arg)-1 phenotypic polarization, which was associated with its antidepressant effects. Furthermore, we showed that LUT concentration-dependently increased the expression of PPARγ in LPS + ATP-treated microglia and the hippocampus of CRS-exposed mice, promoting the subsequent inhibition of the NLRP3 inflammasome. Molecular dynamics (MD) simulation and microscale thermophoresis (MST) analysis confirmed a direct interaction between LUT and peroxisome proliferator-activated receptor gamma (PPARγ). By using the PPARγ antagonist GW9662, we demonstrated that LUT-driven protection, both in vivo and in vitro, resulted from targeting PPARγ. First, LUT-induced Arg-1 microglia were no longer detected when PPARγ was blocked. Next, LUT-mediated inhibition of the NLRP3 inflammasome and downregulation of pro-inflammatory cytokine production were reversed by the inhibition of PPARγ. Finally, the protective effects of LUT, which attenuated the microglial engulfment of synapses and prevented apparent synapse loss in the hippocampus of CRS-exposed mice, were eliminated by blocking PPARγ. In conclusion, this study showed that LUT ameliorates CRS-induced depressive-like behaviors by promoting the Arg-1 microglial phenotype through a PPARγ-dependent mechanism, thereby alleviating microglial pro-inflammatory responses and reversing microglial phagocytosis-mediated synapse loss.