Microglia act as the protective immune cell of the brain. By surveying the tissue to identify and rectify problems, they function to maintain the health of brain cells. The prion protein N-terminal cleavage fragment, N1, has demonstrated neuroprotective activities in vitro and in vivo. This study aimed to elucidate whether N1 could modulate microglial function and, if so, determine the consequences for the surrounding tissue. Using a mixed neuronal lineage and microglia co-culture system, we showed that N1 stimulation changed overall morphology and metabolism, suggesting enhanced cellular viability. Furthermore, N1 induced an increase in Cxcl10 secretion in the co-cultures. Recombinant Cxcl10, administered exogenously, mediated the changes in the mixed neuronal lineage culture morphology and metabolism in the absence of microglia, but no effect of Cxcl10 was observed on microglia cultured on their own. Direct cell-to-cell contact was required for N1 to influence microglia in the co-cultures, and this was linked with restructuring of microglial membrane composition to include a higher GM1 content at interaction sites with surrounding cells. Our findings show that N1 can play a regulatory role in microglial function in the context of an inter-connected network of cells by changing both cellular interaction sites and cytokine secretion.