The class III phosphoinositide 3-kinase (PI3K) Vps34 (also known as PIK3C3 in mammals) produces phosphatidylinositol 3-phosphate [PI(3)P] on both early and late endosome membranes to control membrane dynamics. We used Vps34-deficient cells to delineate whether Vps34 has additional roles in endocytic trafficking. In Vps34^-/- mouse embryonic fibroblasts (MEFs), transferrin recycling and EEA1 membrane localization were unaffected despite elevated Rab5-GTP levels. Strikingly, a large increase in Rab7-GTP levels, an accumulation of enlarged late endosomes, and decreased EGFR degradation were observed in Vps34-deficient cells. The hyperactivation of Rab7 in Vps34-deficient cells stemmed from the failure to recruit the Rab7 GTPase-activating protein (GAP) Armus (also known as TBC1D2), which binds to PI(3)P, to late endosomes. Protein-lipid overlay and liposome-binding assays reveal that the putative pleckstrin homology (PH) domain in Armus can directly bind to PI(3)P. Elevated Rab7-GTP led to the failure of intraluminal vesicle (ILV) formation and lysosomal maturation. Rab7 silencing and Armus overexpression alleviated the vacuolization seen in Vps34-deficient cells. Taken together, these results demonstrate that Vps34 has a previously unknown role in regulating Rab7 activity and late endosomal trafficking.