Membrane trafficking is defined as the vesicular transport of molecules into, out of, and throughout the cell. In intestinal enterocytes, defects in endocytic/recycling pathways result in impaired function and are linked to genetic diseases. However, how these trafficking pathways regulate intestinal tissue homeostasis is poorly understood. Using the Drosophila intestine as an in vivo model system, we investigated enterocyte-specific functions for the early endosomal trafficking machinery in gut homeostasis. We focused on the small GTPase Rab21, which regulates specific steps in early endosomal trafficking. Rab21-depleted guts showed severe abnormalities in intestinal morphology, with deregulated homeostasis associated with a gain in mitotic cells and increased cell death. Increases in both apoptosis and yorkie signaling were responsible for compensatory proliferation and tissue inflammation. Using a RNA interference screen, we identified specific regulators of autophagy and membrane trafficking that phenocopied Rab21 loss. We further showed that Rab21-induced hyperplasia was rescued by inhibition of epidermal growth factor receptor signaling, and identified improperly trafficked cargoes in Rab21-depleted enterocytes. Our data shed light on an important role for early endosomal trafficking, and particularly Rab21, in enterocyte-mediated intestinal homeostasis.