Changes in tissue homeostasis, acquisition of invasive cell characteristics, and tumor formation can often be linked to the loss of epithelial cell polarity. In carcinogenesis, the grade of neoplasia correlates with impaired cell polarity. In Drosophila, lethal giant larvae (lgl), discs large (dlg), and scribble, which are components of the epithelial apico-basal cell polarity machinery, act as tumor suppressors, and orthologs of this evolutionary conserved pathway are lost in human carcinoma with high frequency. However, a mechanistic link between neoplasia and vertebrate orthologs of these tumor-suppressor genes remains to be fully explored at the organismal level. Here, we show that the pen/lgl2 mutant phenotype shares two key cellular and molecular features of mammalian malignancy: cell autonomous epidermal neoplasia and epithelial-to-mesenchymal-transition (EMT) of basal epidermal cells including the differential expression of several regulators of EMT. Further, we found that epidermal neoplasia and EMT in pen/lgl2 mutant epidermal cells is promoted by ErbB signalling, a pathway of high significance in human carcinomas. Intriguingly, EMT in the pen/lgl2 mutant is facilitated specifically by ErbB2 mediated E-cadherin mislocalization and not via canonical snail–dependent down-regulation of E-cadherin expression. Our data reveal that pen/lgl2 functions as a tumor suppressor gene in vertebrates, establishing zebrafish pen/lgl2 mutants as a valuable cancer model.