Epithelial cells are characterized by the ability to form sheets of cells that surround fluid-filled lumens. Cells in these sheets exhibit a characteristic subcellular polarity, with an apical pole that faces the lumen and a basolateral pole that is in contact with other cells and the extracellullar matrix (ECM). To investigate the signaling events required for polarization and lumen formation, we have taken advantage of the ability of Madin-Darby Canine Kidney (MDCK) cells to dynamically remodel their polarity in response to changes in ECM cues. When MDCK cells are grown in suspension culture, they form multicellular "inside-out" cysts with apical proteins found on the peripheral surface and basolateral markers on the interior surface. When these "inside-out" cysts are embedded in ECM, they rapidly re-orient their polarity: apical proteins become localized to the inside surface, and basolateral proteins are found on the surface that contacts ECM. Here, we have characterized the signaling requirements for these early molecular re-orientation events. Specifically, expression of a dominant-negative form of Rac1 (DN-Rac1) blocks the re-orientation of polarity. Phosphoinositide 3'-kinase (PI3K) is required for apical membrane protein remodeling from the initial apical membrane surface. Cells expressing DN-Rac1 fail to detectably activate the PI3K/Akt pathway. Lastly, we found that atypical protein kinase C (PKC) is also required for re-orientation of polarity, since an inhibitor of atypical PKC blocks re-orientation. This effect cannot be overcome by constitutively active Rac1, demonstrating that both Rac1 and atypical PKC are required for re-orientation of cellular polarity.