Lipid peroxidation has been implicated in many age-associated disorders including macular degeneration of the retina. We sought to elucidate the mechanism by which accumulation of oxidized LDL (oxLDL) reduces the ability of retinal pigment epithelium (RPE) to process photoreceptor outer segments (OS) as a model of peroxidation-induced disruption of phagocytosis. OxLDL did not reduce the lysosomal hydrolytic capacity of the RPE, but efficiently inhibited processing of various internalized proteins. OxLDL caused a delay in the acquisition of late lysosomal markers by newly formed phagosomes. At the same time, an excessive accumulation of markers of early phagosomal compartments was also observed. The activity of phosphatidylinositol 3-kinase (PI3K) was reduced in phagosomes of the RPE treated with oxLDL. These results suggest that accumulation of oxidized lipid-protein complexes in the RPE impedes phagosome maturation by blocking PI3K recruitment to the phagosomal membrane, leading to delayed processing of internalized OS.