In most cancers, transformation begins in a single cell in an epithelial cell sheet. However, it is not known what happens at the interface between non-transformed (normal) and transformed cells once the initial transformation has occurred. Using Madin-Darby canine kidney (MDCK) epithelial cells that express constitutively active, oncogenic Ras (Ras(V12)) in a tetracycline-inducible system, we investigated the cellular processes arising at the interface between normal and transformed cells. We show that two independent phenomena occur in a non-cell-autonomous manner: when surrounded by normal cells, Ras(V12) cells are either apically extruded from the monolayer, or form dynamic basal protrusions and invade the basal matrix. Neither apical extrusion nor basal protrusion formation is observed when Ras(V12) cells are surrounded by other Ras(V12) cells. We show that Cdc42 and ROCK (also known as Rho kinase) have vital roles in these processes. We also demonstrate that E-cadherin knockdown in normal cells surrounding Ras(V12) cells reduces the frequency of apical extrusion, while promoting basal protrusion formation and invasion. These results indicate that Ras(V12)-transformed cells are able to recognize differences between normal and transformed cells, and consequently leave epithelial sheets either apically or basally, in a cell-context-dependent manner.