Transmembrane ligands can be internalized across cell boundaries into receptor-expressing cells. In the developing Drosophila eye imaginal disc, the bride of sevenless transmembrane protein (boss) is expressed on the surface of R8 cells. After internalization into neighboring R7 cells, the boss protein accumulates in multivesicular bodies. In a search for genes that affect this cell-type-specific pattern of boss endocytosis, we found that mutations in the hook gene inhibit the accumulation of boss in multivesicular bodies of R7 cells. In addition, hook flies exhibit pleiotropic phenotypes including abnormal bristle morphology and eye degeneration. The wild-type-pattern of boss endocytosis was restored in hook mutants by a genomic rescue fragment containing the hook gene or by a hook cDNA expressed in R7 cells under control of a sevenless (sev) enhancer. The hook gene encodes a novel cytoplasmic protein of 679 amino acids with a central coiled-coil domain of some 200 amino acids. Truncated, epitope-tagged hook proteins coimmunoprecipitated the full-length protein, indicating dimerization mediated by the coiled-coil domain. The hook protein localizes to vesicular structures that are part of the endocytic compartment. The requirement of the hook protein in R7 cells for the accumulation of boss protein in multivesicular bodies, and the localization of the hook protein to endocytic vesicles indicate that the hook gene encodes a novel component of the endocytic compartment that plays an important role in the endocytosis of transmembrane ligands or their transport to multivesicular bodies.