Epithelial cysts are one of the fundamental architectures for mammalian organogenesis. Although in vitro studies using cultured epithelial cells have revealed proteins required for cyst formation, the mechanisms that orchestrate the functions of these proteins in vivo remain to be clarified. We show that the targeted disruption of the mouse Par3 gene results in midgestational embryonic lethality with defective epicardial development. The epicardium is mainly derived from epicardial cysts and essential for cardiomyocyte proliferation during cardiac morphogenesis. PAR3-deficient epicardial progenitor (EPP) cells do not form cell cysts and show defects in the establishment of apical cortical domains, but not in basolateral domains. In PAR3-deficient EPP cells, the localizations of aPKC, PAR6beta and ezrin to the apical cortical domains are disturbed. By contrast, ZO1 and alpha4/beta1 integrins normally localize to cell-cell junctions and basal domains, respectively. Our observations indicate that EPP cell cyst formation requires PAR3 to interpret the polarity cues from cell-cell and cell-extracellular matrix interactions so that each EPP cell establishes apical cortical domains. These results also provide a clear example of the proper organization of epithelial tissues through the regulation of individual cell polarity.