Epithelial folding is crucial to shape embryos and tissues during development. Here we investigate the coupling between epithelial folding and actomyosin-rich boundaries. The mechanistic relationship between the two is unclear, since actomyosin-rich boundaries can be either associated with folds or not, while epithelial folding has been found to be either dependent or independent of actomyosin contractility. Here we investigate the shallow folds that form at compartmental parasegment boundaries (PSBs) in the early Drosophila embryo. First, we demonstrate that formation of these folds is dependent on the contractility of supracellular actomyosin cables. When the Myosin II phosphatase Flawing is depleted at the PSBs, actomyosin contractility increases, resulting in deeper folds. Conversely, in wingless mutants, actomyosin enrichment and increased contractility at PSBs are lost and this correlates with an absence of folding. Furthermore, when we make ectopic PSBs by expressing Wingless ubiquitously, the ectopic boundaries become enriched in actomyosin and epithelial folds form. Ectopic PSB folds, however, are much deeper than endogenous ones, indicating that epithelial folding is normally under inhibitory control. We present evidence that depletion of Bazooka/Par-3 levels at PSB cell-cell contacts, which is under Wingless signaling control, is responsible for this inhibition. Bazooka is found depleted at endogenous but not ectopic PSBs. In embryos overexpressing Bazooka, endogenous PSB folds form earlier and are much deeper. To ask how local signaling at the boundaries control Bazooka levels at cell-cell contacts, we examined embryos that ectopically expressed Wingless in an hedgehog mutant background. In these embryos, inhibition of folding is rescued, with ectopic PSBs now forming shallow folds as endogenous PSBs. Bazooka is depleted at these ectopic PSBs in absence of Hedgehog, suggesting an opposite effect of Wingless and Hedgehog signaling on Bazooka levels at PSB cell-cell contacts. This uncovers a new role of Bazooka in controlling fold formation at actomyosin-rich compartmental boundaries.