How epithelial cells subdivide their plasma membrane into an apical and a basolateral domain is largely unclear. In Drosophila embryos, epithelial cells are generated from a syncytium during cellularization. We show here that polarity is established shortly after cellularization when Par-6 and the atypical protein kinase C concentrate on the apical side of the newly formed cells. Apical localization of Par-6 requires its interaction with activated Cdc42 and dominant-active or dominant-negative Cdc42 disrupt epithelial polarity, suggesting that activation of this GTPase is crucial for the establishment of epithelial polarity. Maintenance of Par-6 localization requires the cytoskeletal protein Lgl. Genetic and biochemical experiments suggest that phosphorylation by aPKC inactivates Lgl on the apical side. On the basolateral side, Lgl is active and excludes Par-6 from the cell cortex, suggesting that complementary cortical domains are maintained by mutual inhibition of aPKC and Lgl on opposite sides of an epithelial cell.