Sorting of membrane proteins into intralumenal endosomal vesicles, multivesicular body (MVB) sorting, is critical for receptor down regulation, antigen presentation and enveloped virus budding. Vps4 is an AAA ATPase that functions in MVB sorting. Although AAA ATPases are oligomeric, mechanisms that govern Vps4 oligomerization and activity remain elusive. Vps4 has an N‐terminal microtubule interacting and trafficking domain required for endosome recruitment, an AAA domain containing the ATPase catalytic site and a β domain, and a C‐terminal α helix positioned close to the catalytic site in the 3D structure. Previous attempts to identify the role of the C‐terminal helix have been unsuccessful. Here, we show that the C‐terminal helix is important for Vps4 assembly and ATPase activity in vitro and function in vivo, but not endosome recruitment or interactions with Vta1 or ESCRT‐III. Unlike the β domain, which is also important for Vps4 assembly, the C‐terminal helix is not required in vivo for Vps4 homotypic interaction or dominant‐negative effects of Vps4–E233Q, carrying a mutation in the ATP hydrolysis site. Vta1 promotes assembly of hybrid complexes comprising Vps4–E233Q and Vps4 lacking an intact C‐terminal helix in vitro. Formation of catalytically active hybrid complexes demonstrates an intersubunit catalytic mechanism for Vps4. One end of the C‐terminal helix lies in close proximity to the second region of homology (SRH), which is important for assembly and intersubunit catalysis in AAA ATPases. We propose that Vps4 SRH function requires an intact C‐terminal helix. Co‐evolution of a distinct Vps4 SRH and C‐terminal helix in meiotic clade AAA ATPases supports this possibility.