Understanding how cells polarize and coordinate tubulogenesis during organ formation is a central question in biology. Tubulogenesis often coincides with cell-lineage specification during organ development. Hence, an elementary question is whether these two processes are independently controlled, or whether proper cell specification depends on formation of tubes. To address these fundamental questions, we have studied the functional role of Cdc42 in pancreatic tubulogenesis. We present evidence that Cdc42 is essential for tube formation, specifically for initiating microlumen formation and later for maintaining apical cell polarity. Finally, we show that Cdc42 controls cell specification non-cell-autonomously by providing the correct microenvironment for proper control of cell-fate choices of multipotent progenitors. For a video summary of this article, see the PaperFlick file with the Supplemental Data available online.