Dystroglycan (Dg) is a widely expressed extracellular matrix (ECM) receptor required for muscle viability, synaptogenesis, basementmembrane formation and epithelial development. As an integral component of the Dystrophin-associated glycoprotein complex, Dg plays a central role in linking the ECM and the cytoskeleton. Disruption of this linkage in skeletal muscle leads to various types of muscular dystrophies. In epithelial cells, reduced expression of Dg is associated with increased invasiveness of cancer cells. We have previously shown that Dg is required for epithelial cell polarity in Drosophila, but the mechanisms of this polarizing activity and upstream/downstream components are largely unknown. Using the Drosophila follicle-cell epithelium (FCE) as a model system, we show that the ECM molecule Perlecan (Pcan) is required for maintenance of epithelial-cell polarity. Follicle cells that lack Pcan develop polarity defects similar to those of Dg mutant cells. Furthermore, Dg depends on Pcan but not on Laminin A for its localization in the basal-cell membrane, and the two proteins bind in vitro. Interestingly, the Dg form that interacts with Pcan in the FCE lacks the mucin-like domain, which is thought to be essential for Dg ligand binding activity. Finally, we describe two examples of how Dg promotes the differentiation of the basal membrane domain: (1) by recruiting/anchoring the cytoplasmic protein Dystrophin; and (2) by excluding the transmembrane protein Neurexin. We suggest that the interaction of Pcan and Dg at the basal side of the epithelium promotes basal membrane differentiation and is required for maintenance of cell polarity in the FCE.