The generation of membrane domains with distinct protein constituents is a hallmark of cell polarization. In epithelia, segregation of membrane proteins into apical and basolateral compartments is critical for cell morphology, tissue physiology and cell signalling. Drosophila proteins that confer apical membrane identity have been found, but the mechanisms that restrict these determinants to the apical cell surface are unknown. Here we show that a laterally localized protein is required for the apical confinement of polarity determinants. Mutations in Drosophila scribble (scrib), which encodes a multi-PDZ (PSD-95, Discs-large and ZO-1) and leucine-rich-repeat protein, cause aberrant cell shapes and loss of the monolayer organization of embryonic epithelia. Scrib is localized to the epithelial septate junction, the analogue of the vertebrate tight junction, at the boundary of the apical and basolateral cell surfaces. Loss of scrib function results in the misdistribution of apical proteins and adherens junctions to the basolateral cell surface, but basolateral protein localization remains intact. These phenotypes can be accounted for by mislocalization of the apical determinant Crumbs. Our results show that the lateral domain of epithelia, particularly the septate junction, functions in restricting apical membrane identity and correctly placing adherens junctions.