Cell division cycle 42 (CDC42) plays important roles in polarity establishment and maintenance as well as cell cycle progression and cell division. Although disruption of cell polarity is a prerequisite in epithelial tumor initiation, the roles of CDC42 in tumorigenesis are still poorly understood. Here we find that Cdc42 deficiency inhibits the Kras G12D -induced lung alveoli tumor formation, while conversely promotes bronchiole tumor formation in mice. Bronchial Cdc42 loss destroys contact inhibition potentially through cell polarity disruption, and results in increased tumor formation. In contrast, deletion of Cdc42 in alveoli cells prevents Kras G12D -induced cell proliferation, which leads to reduced tumor formation. Further analyses of clinical specimens uncover a significant positive correlation between CDC42 and type II alveolar epithelial cells marker SP-A, indicating the potential importance of CDC42 in this specific subset of lung cancer. Collectively, we identify the lineage-specific function of CDC42 in lung tumorigenesis potentially through the regulation of cell polarity integrity.