The sorting nexin 27 (SNX27)-retromer complex is a major regulator of endosome-to-plasma membrane recycling of transmembrane cargos that contain a PSD95, Dlg1, zo-1 (PDZ)-binding motif. Here we describe the core interaction in SNX27-retromer assembly and its functional relevance for cargo sorting. Crystal structures and NMR experiments reveal that an exposed β-hairpin in the SNX27 PDZ domain engages a groove in the arrestin-like structure of the vacuolar protein sorting 26A (VPS26A) retromer subunit. The structure establishes how the SNX27 PDZ domain simultaneously binds PDZ-binding motifs and retromer-associated VPS26. Importantly, VPS26A binding increases the affinity of the SNX27 PDZ domain for PDZ- binding motifs by an order of magnitude, revealing cooperativity in cargo selection. With disruption of SNX27 and retromer function linked to synaptic dysfunction and neurodegenerative disease, our work provides the first step, to our knowledge, in the molecular description of this important sorting complex, and more broadly describes a unique interaction between a PDZ domain and an arrestin-like fold.