LRRK2 (PARK8) is the most common genetic determinant of Parkinson's disease (PD), with dominant mutations in LRRK2 causing inherited PD and sequence variation at the LRRK2 locus associated with increased risk for sporadic PD. Although LRRK2 has been implicated in diverse cellular processes encompassing almost all cellular compartments, the precise functions of LRRK2 remain unclear. Here, we show that the Drosophila homolog of LRRK2 (Lrrk) localizes to the membranes of late endosomes and lysosomes, physically interacts with the crucial mediator of late endosomal transport Rab7 and negatively regulates rab7-dependent perinuclear localization of lysosomes. We also show that a mutant form of lrrk analogous to the pathogenic LRRK2(G2019S) allele behaves oppositely to wild-type lrrk in that it promotes rather than inhibits rab7-dependent perinuclear lysosome clustering, with these effects of mutant lrrk on lysosome position requiring both microtubules and dynein. These data suggest that LRRK2 normally functions in Rab7-dependent lysosomal positioning, and that this function is disrupted by the most common PD-causing LRRK2 mutation, linking endolysosomal dysfunction to the pathogenesis of LRRK2-mediated PD.