The Drosophila Discs large (Dlg) scaffolding protein acts as a tumor suppressor regulating basolateral epithelial polarity and proliferation. In mammals, four Dlg homologs have been identified; however, their functions in cell polarity remain poorly understood. Here, we demonstrate that the X-linked mental retardation gene product Dlg3 contributes to apical-basal polarity and epithelial junction formation in mouse organizer tissues, as well as to planar cell polarity in the inner ear. We purified complexes associated with Dlg3 in polarized epithelial cells, including proteins regulating directed trafficking and tight junction formation. Remarkably, of the four Dlg family members, Dlg3 exerts a distinct function by recruiting the ubiquitin ligases Nedd4 and Nedd4-2 through its PPxY motifs. We found that these interactions are required for Dlg3 monoubiquitination, apical membrane recruitment, and tight junction consolidation. Our findings reveal an unexpected evolutionary diversification of the vertebrate Dlg family in basolateral epithelium formation.