The formation of acinar and ductal structures during epithelial tissue branching morphogenesis is not well understood. We report that in the mouse submandibular gland (SMG), acinar and ductal cell fates are determined early in embryonic morphogenesis with E-cadherin playing pivotal roles in development. We identified two morphologically distinct cell populations at the single bud stage, destined for different functions. The outer layer of columnar cells with organized E-cadherin junctions expressed the neonatal acinar marker B1 by E13.5, demonstrating their acinar fate. The interior cells initially lacked distinct E-cadherin junctions, but with morphogenesis formed cytokeratin 7 (K7) -positive ductal structures with organized E-cadherin junctions and F-actin filaments. Inhibition of E-cadherin function with either siRNA or function blocking antibody caused extensive apoptosis of ductal cells and aberrantly dilated lumens, providing the first evidence that E-cadherin regulates ductal lumen formation during branching morphogenesis of the salivary gland.