The endocytic pathway transports cargo from the plasma membrane to early endosomes, where certain cargoes are sorted to the late endosome/multivesicular body. Biosynthetic cargo destined for the lysosome is also trafficked through the multivesicular body. Once delivered to the multivesicular body, cargo destined for the interior of the lysosome is selectively sorted into vesicles that bud into the lumen of the multivesicular body. These vesicles are released into the lumen of the lysosome upon the fusion of the multivesicular body and lysosomal limiting membranes. The yeast protein Fab1, which catalyzes the production of phosphatidylinositol (3,5) bisphosphate [PtdIns(3,5)P2], is necessary for proper sorting of biosynthetic cargo in the multivesicular body. Utilizing an endocytosis screen, we isolated a novel allele of FAB1 that contains a point mutation in the lipid kinase domain. Characterization of this allele revealed reduced PtdIns(3,5)P2 production, altered vacuole morphology, and biosynthetic protein sorting defects. We also found that endocytosis of the plasma membrane protein Ste3 is partially blocked downstream of the internalization step, and that delivery of the dye FM4-64 to the vacuole is delayed in fab1 mutants. Additionally, Ste3 is not efficiently sorted into multivesicular body vesicles in fab1 mutants and instead localizes to the vacuolar limiting membrane. These data show that PtdIns(3,5)P2 is necessary for proper trafficking and sorting of endocytic cargo through the late endosome/multivesicular body.