The molecular mechanisms underlying the interdependence between intracellular trafficking and epithelial cell polarity are poorly understood. Here we show that inactivation of class III phosphatidylinositol-3-OH kinase (CIII-PI3K), which produces phosphatidylinositol-3-phosphate (PtdIns3P) on endosomes, disrupts epithelial organization. This is caused by dysregulation of endosomally localized Liver Kinase B1 (LKB1, also known as STK11), which shows delocalized and increased activity accompanied by dysplasia-like growth and invasive behaviour of cells provoked by JNK pathway activation. CIII-PI3K inactivation cooperates with RasV12 to promote tumour growth in vivo in an LKB1-dependent manner. Strikingly, co-depletion of LKB1 reverts these phenotypes and restores epithelial integrity. The endosomal, but not autophagic, function of CIII-PI3K controls polarity. We identify the CIII-PI3K effector, WD repeat and FYVE domain-containing 2 (WDFY2), as an LKB1 regulator in Drosophila tissues and human organoids. Thus, we define a CIII-PI3K-regulated endosomal signalling platform from which LKB1 directs epithelial polarity, the dysregulation of which endows LKB1 with tumour-promoting properties.