Coronavirus disease 2019 (COVID-19) is frequently associated with neurological deficits, but how severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) induces these effects remains unclear. Here, we show that astrocytes are readily infected by SARS-CoV-2, but surprisingly, neuropilin-1, not angiotensin-converting enzyme 2 (ACE2), serves as the principal receptor mediating cell entry. Infection is further positively modulated by the two-pore segment channel 2 (TPC2) protein that regulates membrane trafficking and endocytosis. Astrocyte infection produces a pathological response closely resembling reactive astrogliosis characterized by elevated type I interferon (IFN) production, increased inflammation, and the decreased expression of transporters of water, ions, choline, and neurotransmitters. These combined events initiated within astrocytes produce a hostile microenvironment that promotes the dysfunction and death of uninfected bystander neurons. IMPORTANCE SARS-CoV-2 infection primarily targets the lung but may also damage other organs, including the brain, heart, kidney, and intestine. Central nervous system (CNS) pathologies include loss of smell and taste, headache, delirium, acute psychosis, seizures, and stroke. Pathological loss of gray matter occurs in SARS-CoV-2 infection, but it is unclear whether this is due to direct viral infection, indirect effects associated with systemic inflammation, or both. Here, we used induced pluripotent stem cell (iPSC)-derived brain organoids and primary human astrocytes from the cerebral cortex to study direct SARS-CoV-2 infection. Our findings support a model where SARS-CoV-2 infection of astrocytes produces a panoply of changes in the expression of genes regulating innate immune signaling and inflammatory responses. The deregulation of these genes in astrocytes produces a microenvironment within the CNS that ultimately disrupts normal neuron function, promoting neuronal cell death and CNS deficits.