Receptors internalized by endocytosis can return to the plasma membrane (PM) directly from early endosomes (EE; fast recycling) or they can traffic from EE to the endocytic recycling compartment (ERC) and recycle from there (slow recycling). How receptors are sorted for trafficking along these two pathways remains unclear. Here we show that autosomal recessive hypercholesterolemia (ARH) is required for trafficking of megalin, a member of the LDL receptor family, from EE to the ERC by coupling it to dynein; in the absence of ARH, megalin returns directly to the PM from EE via the connecdenn2/Rab35 fast recycling pathway. Binding of ARH to the endocytic adaptor AP-2 prevents fast recycling of megalin. ARH-mediated trafficking of megalin to the ERC is necessary for γ-secretase mediated cleavage of megalin and release of a tail fragment that mediates transcriptional repression. These results identify a novel mechanism for sorting receptors for trafficking to the ERC and link ERC trafficking to regulated intramembrane proteolysis (RIP) and expression of megalin.