In open monolayers of epithelial cells grown in vitro, the apical membrane domain forms on the free cell surface that faces the culture medium. However, in vivo, the apical lumenal compartment arises within groups of cells that do not have a free cell surface. We designed in vitro culture conditions, using small colonies of MDCK cells overlaid with collagen, in which formation of the apical membrane must occur de novo by remodeling existing membrane domains that are contacted by other cells or extracellular matrix. Within 12 hours of collagen overlay, the apical membrane glycoprotein gp135 is removed from the free cell surface, while lateral membrane proteins (e.g. Na+,K+-ATPase) remain at sites of cell-cell contacts. Subsequently, lumenal structures, containing gp135 and the apically secreted protein gp81, formed within these cell-cell contacts. Na+,K+-ATPase, adherens junction (E-cadherin, alpha- and beta-catenins) and tight junction (ZO-1) proteins were localized on the lateral membrane adjacent to, but excluded from the gp135-positive lumenal compartment. Therefore, each lumen represents a newly formed apical compartment on the lateral membrane. The Golgi complex (alpha-mannosidase II and Golgi beta-spectrin), centrosomes (gamma-tubulin) and microtubules reorient to a cytoplasmic position adjacent to the newly-forming apical lumenal compartments. Significantly, addition of colchicine, nocodazole or brefeldin A inhibits apical lumen formation. These results demonstrate that simple epithelial cells form an apical lumenal compartment de novo through initial intermixing, and then sorting of apical and basal-lateral membrane proteins at sites of cell-cell contacts. In addition, apical lumen formation requires an intact microtubule network, microtubule-dependent reorientation of the Golgi complex and secretory apparatus, and fully functional protein delivery from the Golgi complex to the forming apical cell surface.