Endocytosis and endosome trafficking regulate cell signaling in unexpected ways. Here we review the contribution that Drosophila research has made to this exciting field. In addition to attenuating signaling, endocytosis shapes morphogen gradients, activates ligands, and regulates spatially receptor activation within a single cell. Moreover, some receptors signal from within endosomes, and the ability of a specific type of endosome to form controls the ability of cells to signal. Experiments in Drosophila reveal that through regulation of a variety of cell signaling pathways, endocytosis controls cell patterning and cell fate.