Shoot apical meristems (SAMs) of seed plants are small groups of pluripotent cells responsible for making leaves, stems and flowers. While the primary SAM forms during embryogenesis, new SAMs, called axillary SAMs, develop later on the body of the plant and give rise to branches. In Arabidopsis plants, axillary SAMs develop in close association with the adaxial leaf base at the junction of the leaf and stem (the leaf axil). We describe the phenotype caused by the Arabidopsis phabulosa-1d (phb-1d) mutation. phb-1d is a dominant mutation that causes altered leaf polarity such that adaxial characters develop in place of abaxial leaf characters. The adaxialized leaves fail to develop leaf blades. This supports a recently proposed model in which the juxtaposition of ad- and abaxial cell fates is required for blade outgrowth. In addition to the alteration in leaf polarity, phb-1d mutants develop ectopic SAMs on the undersides of their leaves. Also, the phb-1d mutation weakly suppresses the shoot meristemless (stm) mutant phenotype. These observations indicate an important role for adaxial cell fate in promoting the development of axiallary SAMs and suggest a cyclical model for shoot development: SAMs make leaves which in turn are responsible for generating new SAMs.