AbstractClustered regularly interspaced short palindromic repeats (CRISPR) screening coupled with single-cell RNA sequencing has emerged as a powerful tool to characterize the effects of genetic perturbations on the whole transcriptome at a single-cell level. However, due to its sparsity and complex structure, analysis of single-cell CRISPR screening data is challenging. In particular, standard differential expression analysis methods are often underpowered to detect genes affected by CRISPR perturbations. We developed a statistical method for such data, called guided sparse factor analysis (GSFA). GSFA infers latent factors that represent coregulated genes or gene modules; by borrowing information from these factors, it infers the effects of genetic perturbations on individual genes. We demonstrated through extensive simulation studies that GSFA detects perturbation effects with much higher power than state-of-the-art methods. Using single-cell CRISPR data from human CD8⁺ T cells and neural progenitor cells, we showed that GSFA identified biologically relevant gene modules and specific genes affected by CRISPR perturbations, many of which were missed by existing methods, providing new insights into the functions of genes involved in T cell activation and neurodevelopment.