During Drosophila embryogenesis the first epithelium with defined cortical compartments is established during cellularization. Actin polymerization is required for the separation of lateral and basal domains as well as suppression of tubular extensions in the basal domain. The actin nucleator mediating this function is unknown. We found that the formin diaphanous (dia) is required for establishing and maintaining distinct lateral and basal domains during cellularization. In dia mutant embryos lateral marker proteins, such as Discs-large (Dlg) and Armadillo/beta-Catenin (Arm) spread into the basal compartment. Furthermore, high-resolution and live-imaging analysis of dia mutant embryos revealed an increased number of membrane extensions and endocytic activity at the basal domain, indicating a suppressing function of dia on membrane invaginations. Dia function may be based on an antagonistic interaction with the F-BAR protein Cip4/Toca-1, a known activator of the WASP/WAVE-Arp2/3 pathway. Dia and Cip4 physically and functionally interact and overexpression of Cip4 phenocopies dia loss-of-function. In vitro, Cip4 inhibits mainly actin nucleation by Dia. Thus, our data support a model in which linear actin filaments induced by Dia stabilize cortical compartmentalization by antagonizing WASP/WAVE-Arp2/3 induced membrane turnover.