Iron availability is a key regulator of virulence factor elaboration in Cryptococcus neoformans, the causative agent of fungal meningoencephalitis in HIV/AIDS patients. In addition, iron is an essential nutrient for pathogen proliferation in mammalian hosts but little is known about the mechanisms of iron sensing and uptake in fungal pathogens that attack humans. In this study, we mutagenized C. neoformans by Agrobacterium-mediated T-DNA insertion and screened for mutants with reduced growth on heme as the sole iron source. Among 34 mutants, we identified a subset with insertions in the gene for the ESCRT-I (endosomal sorting complex required for transport) protein Vps23 that resulted in a growth defect on heme, presumably due to a defect in uptake via endocytosis or misregulation of iron acquisition from heme. Remarkably, vps23 mutants were also defective in the elaboration of the cell-associated capsular polysaccharide that is a major virulence factor, while overexpression of Vps23 resulted in cells with a slightly enlarged capsule. These phenotypes were mirrored by a virulence defect in the vps23 mutant in a mouse model of cryptococcosis and by hypervirulence of the overexpression strain. Overall, these results reveal an important role for trafficking via ESCRT functions in both heme uptake and capsule formation, and they further reinforce the connection between iron and virulence factor deployment in C. neoformans.