Developmental patterning requires the precise interplay of numerous intercellular signaling pathways to ensure that cells are properly specified during tissue formation and organogenesis. The spatiotemporal function of many developmental pathways is strongly influenced by the biosynthesis and intracellular trafficking of signaling components. Receptors and ligands must be trafficked to the cell surface where they interact, and their subsequent endocytic internalization and endosomal trafficking is critical for both signal propagation and its down-modulation. In a forward genetic screen for mutations that alter intracellular Notch receptor trafficking in Drosophila melanogaster, we recovered mutants that disrupt genes encoding serine palmitoyltransferase and acetyl-CoA carboxylase. Both mutants cause Notch, Wingless, the Epidermal Growth Factor Receptor (EFGR), and Patched to accumulate abnormally in endosomal compartments. In mosaic animals, mutant tissues exhibit an unusual non-cell-autonomous effect whereby mutant cells are functionally rescued by secreted activities emanating from adjacent wildtype tissue. Strikingly, both mutants display prominent tissue overgrowth phenotypes that are partially attributable to altered Notch and Wnt signaling. Our analysis of the mutants demonstrates genetic links between abnormal lipid metabolism, perturbations in developmental signaling, and aberrant cell proliferation.