In mammalian cells, epidermal growth factor (EGF) stimulation promotes multivesicular body (MVB) formation and inward vesiculation within MVB. Annexin 1 is required for EGF-stimulated inward vesiculation but not MVB formation, demonstrating that MVB formation (the number of MVBs/unit cytoplasm) and inward vesiculation (the number of internal vesicles/MVB) are regulated by different mechanisms. Here, we show that EGF-stimulated MVB formation requires the tumor susceptibility gene, Tsg101, a component of the ESCRT (endosomal sorting complex required for transport) machinery. Depletion of Tsg101 potently inhibits EGF degradation and MVB formation and causes the vacuolar domains of the early endosome to tubulate. Although Tsg101 depletion inhibits MVB formation and alters the morphology of the early endosome in unstimulated cells, these effects are much greater after EGF stimulation. In contrast, depletion of hepatocyte growth factor receptor substrate (Hrs) only modestly inhibits EGF degradation, does not induce tubulation of the early endosome, and causes the generation of enlarged MVBs that retain the ability to fuse with the lysosome. Together, these results indicate that Tsg101 is required for the formation of stable vacuolar domains within the early endosome that develop into MVBs and Hrs is required for the accumulation of internal vesicles within MVBs and that both these processes are up-regulated by EGF stimulation.