Degradation of most integral membrane proteins is directed by the endosomal sorting complex required for transport (ESCRT) machinery, which selectively targets ubiquitin-modified cargoes into intralumenal vesicles (ILVs) within multivesicular endosomes (MVEs). To better understand the mechanisms underlying ESCRT-mediated formation of ILVs, we exploited the rapid, de novo biogenesis of MVEs during the oocyte-to-embryo transition in C. elegans. In contrast to previous models suggesting that ILVs form individually, we demonstrate that they remain tethered to one another subsequent to internalization, arguing that they bud continuously from stable subdomains. In addition, we show that membrane bending and ILV formation are directed specifically by the ESCRT-III complex in vivo in a manner regulated by Ist1, which promotes ESCRT-III assembly and inhibits the incorporation of upstream ESCRT components into ILVs. Our findings underscore essential actions for ESCRT-III in membrane remodeling, cargo selection, and cargo retention, which act repetitively to maximize the rate of ILV formation.