Ligand-induced activation of the epidermal growth factor receptor (EGFR) initiates multiple signal-transduction pathways as well as trafficking events that relocalize the receptors from the cell surface to intracellular endocytic compartments. Although there is growing awareness that endocytic transport can play a direct role in signal specification, relatively little is known about the molecular mechanisms underlying this link. Here we show that human Sprouty 2 (hSpry2), a protein that has been implicated in the negative regulation of receptor tyrosine kinase (RTK) signaling [1], interferes with the trafficking of activated EGFR specifically at the step of progression from early to late endosomes. This effect is mediated by the binding of hSpry2 to the endocytic regulatory protein, hepatocyte growth factor-regulated tyrosine kinase substrate (Hrs), and leads to a block in intracellular signal propagation. These observations suggest that EGFR signaling is controlled by a novel mechanism involving trafficking-dependent alterations in receptor compartmentalization.