Mammalian cellular repressor of E1A-stimulated genes is a lysosomal glycoprotein implicated in cellular growth and differentiation. The genome of the fruit fly Drosophila melanogaster encodes a putative orthologue (dCREG), suggesting evolutionarily conserved physiological functions of this protein. In D. melanogaster S2 cells, dCREG was found to localize in lysosomes. Further studies revealed that intracellular dCREG is subject of proteolytic maturation. Processing and turnover could be substantially reduced by RNAi-mediated silencing of cathepsin L. In contrast to mammalian cells, lysosomal delivery of dCREG does not depend on its carbohydrate moiety. Furthermore, depletion of the putative D. melanogaster lysosomal sorting receptor lysosomal enzyme receptor protein did not compromise cellular retention of dCREG. We also investigated the developmental consequences of dCREG ablation in whole D. melanogaster flies. Ubiquitous depletion of dCREG proved lethal at the late pupal stage once a knock-down efficiency of > 95% was achieved. These results demonstrate that dCREG is essential for proper completion of fly development.