Although cell surface metalloendopeptidases degrade neuropeptides in the extracellular fluid to terminate signaling, the function of peptidases in endosomes is unclear. We report that isoforms of endothelin-converting enzyme-1 (ECE-1a–d) are present in early endosomes, where they degrade neuropeptides and regulate post-endocytic sorting of receptors. Calcitonin gene-related peptide (CGRP) co-internalizes with calcitonin receptor-like receptor (CLR), receptor activity-modifying protein 1 (RAMP1), β-arrestin2, and ECE-1 to early endosomes, where ECE-1 degrades CGRP. CGRP degradation promotes CLR/RAMP1 recycling and β-arrestin2 redistribution to the cytosol. ECE-1 inhibition or knockdown traps CLR/RAMP1 and β-arrestin2 in endosomes and inhibits CLR/RAMP1 recycling and resensitization, whereas ECE-1 overexpression has the opposite effect. ECE-1 does not regulate either the resensitization of receptors for peptides that are not ECE-1 substrates (e.g., angiotensin II), or the recycling of the bradykinin B₂ receptor, which transiently interacts with β-arrestins. We propose a mechanism by which endosomal ECE-1 degrades neuropeptides in endosomes to disrupt the peptide/receptor/β-arrestin complex, freeing internalized receptors from β-arrestins and promoting recycling and resensitization.