To identify novel proteins required for receptor-mediated endocytosis, we have developed an RNAi-based screening method in Drosophila S2 cells, based on uptake of a scavenger receptor ligand. Some known endocytic proteins are essential for endocytosis in this assay, including clathrin and alpha-adaptin; however, other proteins important for synaptic vesicle endocytosis are not required. In a small screen for novel endocytic proteins, we identified the Drosophila homologue of Vps35, a component of the retromer complex, involved in endosome-to-Golgi trafficking. Loss of Vps35 inhibits scavenger receptor ligand endocytosis, and causes mislocalisation of a number of receptors and endocytic proteins. Vps35 has tumour suppressor properties because its loss leads to overproliferation of blood cells in larvae. Its loss also causes signalling defects at the neuromuscular junction, including upregulation of TGFbeta/BMP signalling and excessive formation of synaptic terminals. Vps35 negatively regulates actin polymerisation, and genetic interactions suggest that some of the endocytic and signalling defects of vps35 mutants are due to this function.