Lipofuscin accumulation in the retinal pigment epithelium (RPE) is associated with various blinding retinal diseases, including age-related macular degeneration (AMD). The major lipofuscin fluorophor A2-E is thought to play an important pathogenetic role. In previous studies A2-E was shown to severely impair lysosomal function of RPE cells. However, the underlying molecular mechanism remained obscure. Using purified lysosomes from RPE cells we now demonstrate that A2-E is a potent inhibitor of the ATP-driven proton pump located in the lysosomal membrane. Such inhibition of proton transport to the lysosomal lumen results in an increase of the lysosomal pH with subsequent inhibition of lysosomal hydrolases. An essential task of the lysosomal apparatus of postmitotic RPE for normal photoreceptor function is phagocytosis and degradation of membranous discs shed from photoreceptor outer segments (POS) and of biomolecules from autophagy. When the lysosomes of cultured RPE cells were experimentally loaded with A2-E, we observed intracellular accumulation of exogenously added POS with subsequent congestion of the phagocytic process. Moreover, the autophagic sequestration of cytoplasmic material was also markedly reduced after A2-E loading. These data support the hypothesis that A2-E-induced lysosomal dysfunction contributes to the pathogenesis of AMD and other retinal diseases associated with excessive lipofuscin accumulation.