Aberrant induction of type I IFN is a hallmark of the inherited encephalopathy Aicardi-Goutières syndrome (AGS), but the mechanisms triggering disease in the human central nervous system (CNS) remain elusive. Here, we generated human models of AGS using genetically modified and patient-derived pluripotent stem cells harboring TREX1 or RNASEH2B loss-of-function alleles. Genome-wide transcriptomic analysis reveals that spontaneous proinflammatory activation in AGS astrocytes initiates signaling cascades impacting multiple CNS cell subsets analyzed at the single-cell level. We identify accumulating DNA damage, with elevated R-loop and micronuclei formation, as a driver of STING- and NLRP3-related inflammatory responses leading to the secretion of neurotoxic mediators. Importantly, pharmacological inhibition of proapoptotic or inflammatory cascades in AGS astrocytes prevents neurotoxicity without apparent impact on their increased type I IFN responses. Together, our work identifies DNA damage as a major driver of neurotoxic inflammation in AGS astrocytes, suggests a role for AGS gene products in R-loop homeostasis, and identifies common denominators of disease that can be targeted to prevent astrocyte-mediated neurotoxicity in AGS.