Epithelial cells develop morphologically characteristic apical domains that are bordered by tight junctions, the apical-lateral border. Cdc42 and its effector complex Par6-atypical protein kinase c (aPKC) regulate multiple steps during epithelial differentiation, but the mechanisms that mediate process-specific activation of Cdc42 to drive apical morphogenesis and activate the transition from junction formation to apical differentiation are poorly understood. Using a small interfering RNA screen, we identify Dbl3 as a guanine nucleotide exchange factor that is recruited by ezrin to the apical membrane, that is enriched at a marginal zone apical to tight junctions, and that drives spatially restricted Cdc42 activation, promoting apical differentiation. Dbl3 depletion did not affect junction formation but did affect epithelial morphogenesis and brush border formation. Conversely, expression of active Dbl3 drove process-specific activation of the Par6-aPKC pathway, stimulating the transition from junction formation to apical differentiation and domain expansion, as well as the positioning of tight junctions. Thus, Dbl3 drives Cdc42 signaling at the apical margin to regulate morphogenesis, apical-lateral border positioning, and apical differentiation.