Batten disease is characterised by lysosomal dysfunction. The most common type of the disease is caused by mutations in the membrane protein CLN3, whose function is unknown. We show that the fission yeast orthologue Btn1p, previously implicated in vacuole function, is required for correct sorting of the vacuole hydrolase carboxypeptidase Y (Cpy1p). This is, in part, due to a defect in trafficking of Vps10p, the sorting receptor for Cpy1p, from the Golgi to the trans-Golgi network in btn1Δ cells. Our data also implicate btn1 in other Vps10-independent Cpy1-sorting pathways. Furthermore, btn1 affects the number, intracellular location and structure of Golgi compartments. We show that the prevacuole location of Btn1p is at the Golgi, because Btn1p colocalises predominantly with the Golgi marker Gms1p in compartments that are sensitive to Brefeldin A. Btn1p function might be linked to that of Vps34p, a phosphatidylinositol 3-kinase, because Btn1p acts as a multicopy suppressor of the severe Cpy1p vacuole protein-sorting defect of vps34Δ cells. Together, these results indicate an important role for Btn1p in the Golgi complex, which affects Golgi homeostasis and vacuole protein sorting. We propose a similar role for CLN3 in mammalian cells.