Vacuolar protein sorting 45 homolog (VPS45), a member of the Sec1/Munc18 (SM) family, has been implicated in the regulation of endosomal trafficking. VPS45 deficiency in human patients results in congenital neutropenia, bone marrow fibrosis, and extramedullary renal hematopoiesis. Detailed mechanisms of the VPS45 function are unknown. Here, we show an essential role of mammalian VPS45 in maintaining the intracellular organization of endolysosomal vesicles and promoting recycling of cell-surface receptors. Loss of VPS45 causes defective Rab5-to-Rab7 conversion resulting in trapping of cargos in early endosomes and impaired delivery to lysosomes. In this context, we demonstrate aberrant trafficking of the granulocyte colony-stimulating factor receptor in the absence of VPS45. Furthermore, we find that lack of VPS45 in mice is not compatible with embryonic development. Thus, we identify mammalian VPS45 as a critical regulator of trafficking through the endosomal system and early embryogenesis of mice.