Light-induced endocytosis of rhodopsin in the retina is critical for preventing photoreceptor hyperactivity and for the survival of photoreceptor cells. In Drosophila, this process is mediated by arrestin1 (Arr1). Because Arr1 lacks a clathrin-binding domain required for receptor internalization and the C-terminal sequence that interacts with the β-subunit of the clathrin adaptor protein AP2, the mechanism of how Arr1 mediates endocytosis of the major rhodopsin Rh1 is unclear. Here, using several approaches, including Arr binding and pulldown assays, immunofluorescence techniques, and EM imaging, we found that Drosophila metallophosphoesterase (dMPPE) is involved in light-induced rhodopsin endocytosis. We observed that the photoreceptor cells of a dmppe mutant exhibit impaired light-induced rhodopsin endocytosis and that this impairment is independent of dMPPE phosphoesterase activity. Furthermore, dMPPE directly interacted with Arr1 and promoted the association of Arr1 with AP2. Of note, genetic dmppe deletion largely prevented retinal degeneration in norpA (encoding phospholipase C) mutants, which were reported previously to contribute to retinal degeneration, by suppressing Rh1 endocytosis. Our findings demonstrate that Arr1 interacts with AP2 and that dMPPE functions as a critical regulator in Rh1 endocytosis and retinal degeneration.