The cytoplasmic droplet is a conserved dilated area of cytoplasm situated at the neck of the sperm flagellum. Viewed as residual cytoplasm inherited from late spermatids, the cytoplasmic droplet contains numerous saccular elements as its key content. However, the origin of these saccules and the function of the cytoplasmic droplet have long been speculative. Here, we identify the molecular origin of these cytoplasmic droplet components by uncovering a vesicle pathway essential for formation and sequestration of saccules within the cytoplasmic droplet. This process is governed by a transmembrane protein SYPL1 and its interaction with VAMP3. Genetic ablation of SYPL1 in mice reveals that SYPL1 dictates the formation and accumulation of saccular elements in the forming cytoplasmic droplet. Derived from the Golgi, SYPL1 vesicles are critical for segregation of key metabolic enzymes within the forming cytoplasmic droplet of late spermatids and epididymal sperm, which are required for sperm development and male fertility. Our results uncover a mechanism to actively form and segregate saccules within the cytoplasmic droplet to promote sperm fertility.