Signaling through tyrosine kinase receptors (TKRs) is thought to be modulated by receptor-mediated endocytosis and degradation of the receptor in the lysosome. However, factors that regulate endosomal sorting of TKRs are largely unknown. Here, we demonstrate that Hrs (Hepatocyte growth factor-regulated tyrosine kinase substrate) is one such factor. Electron microscopy studies of hrs mutant larvae reveal an impairment in endosome membrane invagination and formation of multivesicular bodies (MVBs). hrs mutant animals fail to degrade active epidermal growth factor (EGF) and Torso TKRs, leading to enhanced signaling and altered embryonic patterning. These data suggest that Hrs and MVB formation function to downregulate TKR signaling.