Microsoft 365 is the company's cloud subscription that includes Outlook, Teams and other widely used workplace tools.
The company said the disruption affected Microsoft 365 service connectivity for users in any region, after first saying it was investigating reports in the Americas.
The disruption went global within about an hour, Downdetector reported, knocking out Microsoft products across dozens of countries and territories.
Microsoft said it was struggling with an outage that reportedly affected tens of thousands of users.
On X, the company said a number of servers were"being unexpectedly unavailable,"straining the systems that remained online.
It also blamed elevated infrastructure loads and said it was working to restore services, though recovery remained limited hours later.
"We've paused all deployments, we're moving additional traffic off the affected infrastructure, and we're restarting affected servers to return them to service,"Microsoft said.
As the outage continued, the company posted a series of updates on X describing further efforts to restore full service that had not yet succeeded.
Among the problems, users may be unable to view certain files or details in calendar apps, Microsoft said.
OpenAI, the maker of ChatGPT, said it was investigating an issue affecting its connections to Microsoft's services that had caused some tools not to work as expected.
"We appreciate our customers' patience while we work to restore services as soon as possible,"a Microsoft spokesperson said.
The BBC said it understood there was no indication the outage was caused by a cyber-attack.
The failure followed an outage of Microsoft's Azure cloud platform last month that affected the company's productivity tools and companies worldwide.