The establishment of trophectoderm (TE) manifests as the formation of epithelium, and is dependent on many structural and regulatory components that are commonly found and function in many epithelial tissues. However, the mechanism of TE formation is currently not well understood. Prickle1 (Pk1), a core component of the planar cell polarity (PCP) pathway, is essential for epiblast polarization before gastrulation, yet the roles of Pk family members in early mouse embryogenesis are obscure. Here we found that Pk2(-/-) embryos died at E3.0-3.5 without forming the blastocyst cavity and not maintained epithelial integrity of TE. These phenotypes were due to loss of the apical-basal (AB) polarity that underlies the asymmetric redistribution of microtubule networks and proper accumulation of AB polarity components on each membrane during compaction. In addition, we found GTP-bound active form of nuclear RhoA was decreased in Pk2(-/-) embryos during compaction. We further show that the first cell fate decision was disrupted in Pk2(-/-) embryos. Interestingly, Pk2 localized to the nucleus from the 2-cell to around the 16-cell stage despite its cytoplasmic function previously reported. Inhibiting farnesylation blocked Pk2's nuclear localization and disrupted AB cell polarity, suggesting that Pk2 farnesylation is essential for its nuclear localization and function. The cell polarity phenotype was efficiently rescued by nuclear but not cytoplasmic Pk2, demonstrating the nuclear localization of Pk2 is critical for its function.