β-Catenin mediates the canonical Wnt pathway by stimulating Tcf-dependent transcription and also associates to N-cadherin at the apical complex (AC) of neuroblasts. Here, we show that while β-catenin activity is required to form the AC and to maintain the cell polarity, oncogenic mutations that render stable forms of β-catenin (sβ-catenin) maintain the stemness of neuroblasts, inhibiting their differentiation and provoking aberrant growth. In examining the transcriptional and structural roles of β-catenin, we find that while β-catenin/Tcf transcriptional activity induces atypical protein kinase C (aPKC) expression, an alternative effect of β-catenin restricts aPKC to the apical pole of neuroepithelial cells. In agreement, we show that a constitutively active form of aPKC reproduces the neuroepithelial aberrations induced by β-catenin. Therefore, we conclude that β-catenin controls the cell fate and polarity of the neuroblasts through the expression and localization of aPKC.