Organelles of the endomembrane system need to counterbalance fission and fusion events to maintain their surface-to-volume ratio. At the late mammalian endosome, the Rab GTPase Rab7 is a major regulator of fusion, whereas the homologous yeast protein Ypt7 seems to be restricted to the vacuole surface. Here, we present evidence that Ypt7 is recruited to and acts on late endosomes, where it affects multiple trafficking reactions. We show that overexpression of Ypt7 results in expansion and massive invagination of the vacuolar membrane, which requires cycling of Ypt7 between GDP- and GTP-bound states. Invaginations are blocked by ESCRT, CORVET and retromer mutants, but not by autophagy or AP-3 mutants. We also show that Ypt7-GTP specifically binds to the retromer cargo-recognition subcomplex, which--like its cargo Vps10--is found on the vacuole upon Ypt7 overproduction. Our data suggest that Ypt7 functions at the late endosome to coordinate retromer-mediated recycling with the fusion of late endosomes with vacuoles.