Intracellular trafficking regulates the distribution of transmembrane proteins including the key determinants of epithelial polarity and adhesion. The Adaptor Protein 1 (AP-1) complex is the key regulator of vesicle sorting, which binds many specific cargoes. We examined roles of the AP-1 complex in epithelial morphogenesis, using the Drosophila wing as a paradigm. We found that AP-1 knockdown leads to ectopic tissue folding, which is consistent with the observed defects in integrin targeting to the basal cell-extracellular matrix adhesion sites. This occurs concurrently with an integrin-independent induction of cell death, which counteracts elevated proliferation and prevents hyperplasia. We discovered a distinct pool of AP-1 that localizes at the subapical adherens junctions. Upon AP-1 knockdown, E-cadherin is hyperinternalized from these junctions and becomes enriched at the Golgi and recycling endosomes. We then provide evidence that E-cadherin hyperinternalization acts upstream of cell death in a potential tumor-suppressive mechanism. Simultaneously, cells compensate for elevated internalization of E-cadherin by increasing its expression to maintain cell-cell adhesion.