Members of the STAM family of proteins, STAM1 and STAM2, are associated with Hrs through their coiled-coil regions. Both Hrs and STAM bind ubiquitin and are involved in endosomal sorting of ubiquitinated cargo proteins for trafficking to the lysosome. Here we examined the biological significance of STAM binding to Hrs. Endogenous STAM1 and STAM2 were mostly localized on the early endosome, suggesting that they are resident endosomal proteins. A STAM2 mutant that lacks the coiled-coil region and does not bind Hrs, in contrast, mislocalized to the cytoplasm. Deletion of a region located N-terminal to the coiled-coil region and conserved among STAM proteins also severely affected Hrs binding and the endosomal localization of STAM2, suggesting that this region is also involved in these activities. Depletion of endogenous Hrs by RNA interference similarly caused the mislocalization of exogenously expressed STAM2 to the cytoplasm. These results indicate that STAM is localized to the early endosome by binding to Hrs on the target membrane. In addition, the expression level of endogenous STAM proteins was drastically reduced in Hrs-depleted cells, suggesting that STAM is stabilized by binding to Hrs. Finally, STAM2 mutants lacking the Hrs-binding activity were defective in causing the enlargement of early endosomes, accumulating ubiquitinated proteins on this aberrant organelle, and inhibiting the degradation of ligand-activated epidermal growth factor receptors, suggesting that the association with Hrs is a prerequisite for STAM function.