The first two cell lineages in the mouse, the surface trophectoderm (TE) and inner cell mass (ICM), are morphologically distinguishable by E3.5, with the outer TE forming a polarized epithelial layer enclosing the apolar ICM. We show here that in mouse embryos completely lacking both maternal and zygotic E-cadherin (cadherin 1), the normal epithelial morphology of outside cells is disrupted, but individual cells still initiate TE- and ICM-like fates. A larger proportion of cells than normal showed expression of TE markers such as Cdx2, suggesting that formation of an organized epithelium is not necessary for TE-specific gene expression. Individual cells in such embryos still generated an apical domain that correlated with elevated Cdx2 expression. We also show that repolarization can occur in isolated early ICMs from both wild-type and Cdx2 mutant embryos, indicating that Cdx2 is not required for initiating polarity. The results demonstrate that epithelial integrity mediated by E-cadherin is not required for Cdx2 expression, but is essential for the normal allocation of TE and ICM cells. They also show that Cdx2 expression is strongly linked to apical membrane polarization.