Endosomal degradation is severely impaired in primary hemocytes from larvae of eye color mutants of Drosophila. Using high resolution imaging and immunofluorescence microscopy in these cells, products of eye color genes, deep-orange (dor) and carnation (car), are localized to large multivesicular Rab7-positive late endosomes containing Golgi-derived enzymes. These structures mature into small sized Dor-negative, Car-positive structures, which subsequently fuse to form tubular lysosomes. Defective endosomal degradation in mutant alleles of dor results from a failure of Golgi-derived vesicles to fuse with morphologically arrested Rab7-positive large sized endosomes, which are, however, normally acidified and mature with wild-type kinetics. This locates the site of Dor function to fusion of Golgi-derived vesicles with the large Rab7-positive endocytic compartments. In contrast, endosomal degradation is not considerably affected in car1 mutant; fusion of Golgi-derived vesicles and maturation of large sized endosomes is normal. However, removal of Dor from small sized Car-positive endosomes is slowed, and subsequent fusion with tubular lysosomes is abolished. Overexpression of Dor in car1 mutant aggravates this defect, implicating Car in the removal of Dor from endosomes. This suggests that, in addition to an independent role in fusion with tubular lysosomes, the Sec1p homologue, Car, regulates Dor function.