Although the molecular mechanisms governing abscission of isolated cells have largely been elucidated, those underlying the abscission of epithelial progenitors surrounded by epidermal cells (ECs), connected via cellular junctions, remain largely unexplored. Here, we investigated the remodeling of the paracellular diffusion barrier ensured by septate junctions (SJs) during cytokinesis of Drosophila sensory organ precursors (SOPs). We found that SOP cytokinesis involves the coordinated, polarized assembly and remodeling of SJs in the dividing cell and its neighbors, which remain connected to the former via membrane protrusions pointing towards the SOP midbody. SJ assembly and midbody basal displacement occur faster in SOPs than in ECs, leading to quicker disentanglement of neighboring cell membrane protrusions prior to midbody release. As reported in isolated cells, the endosomal sorting complex required for the transport-III component Shrub/CHMP4B is recruited at the midbody and cell-autonomously regulates abscission. In addition, Shrub is recruited to membrane protrusions and is required for SJ integrity, and alteration of SJ integrity leads to premature abscission. Our study uncovers cell-intrinsic and -extrinsic functions of Shrub in coordinating remodeling of the SJs and SOP abscission.