Epithelial cysts comprise the structural units of the glandular epithelium. Although glandular inversion in epithelial tumors is thought to be a potential mechanism for the establishment of metastatic disease, little is known about the morphogenic cues and signaling pathways that govern glandular polarity and organization. Using organotypic cultures of Madin-Darby canine kidney cells in reconstituted basement membrane, we show that cellular depletion of the small GTP-binding protein ARF6 promotes the formation of inverted cysts, wherein the apical cell membrane faces the cyst exterior, and the basal domain faces the central lumen, while individual cell polarity is maintained. These cysts are also defective in interactions with laminin at the cyst-matrix interface. This inversion of glandular orientation is accompanied by Rac1 inactivation during early cystogenesis, and temporal activation of Rac1 is sufficient to recover the normal cyst phenotype. In an unnatural collagen I microenvironment, ARF6-depleted, inverted epithelial cysts exhibit some loss of cell polarity, a marked increase in Rho activation and Rac1 inactivation, and striking rearrangement of the surrounding collagen I matrix. These studies demonstrate the importance of ARF6 as a critical determinant of glandular orientation and the matrix environment in dictating structural organization of epithelial cysts.