Rabs coordinate cellular vesicle transport and cycle between a GDP-bound inactive and GTP-bound active state. The pool of active RabGTP is controlled by GTPase-activating proteins (GAPs) that accelerate GTP hydrolysis and thereby regulate Rab inactivation. In a genetic screen in Drosophila for defects in neuronal communication, we identified mutations in a gene that encodes a novel uncharacterized putative RabGAP that we show to be expressed in neurons. Based on the behavior of mutant larvae, we named the mutant skywalker. Analyses of synaptic vesicle traffic at neuromuscular junctions using live imaging show that unlike controls, vesicles in mutants do not distribute uniformly in boutons but concentrate in large subsynaptic membrane inclusions. These inclusions are reminiscent of large endosomal like structures as gauged by electron microscopy and colocalize with the endosomal marker FYVE-GFP. Interestingly, electrophysiological analyses of skywalker mutant synapses show a dramatic increase in transmitter release, suggesting that when synaptic vesicles cycle through an endosomal-like compartment, they become more fusion competent. Using a collection of transgenic flies that express dominant active or dominant negative Rabs we have identified the Rabs that are regulated by this putative RabGAP and we have confirmed the data using direct GTPase assays. Expression of the dominant active forms of these Rabs also dramatically facilitates neurotransmitter release. Hence, our data indicate an important role for this novel RabGAP Skywalker and associated Rab(s) in the regulation of endosomal traffic of synaptic vesicles and suggest that endosomes are critical regulators of synaptic strength.