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The separation of yolk from the embryonic cytoplasm characterizes the initial phase of embryonic development in oviparous animals, including fish, frogs and flies. While yolk-cytoplasm separation is known for allocation of energy resources and partitioning of maternally deposited patterning elements critical for cell fate specification, it remains unknown whether such separation changes the material properties of the embryo interior and mechanically influences the development of the blastoderm. In the early Drosophila embryo, lipid droplets (LDs) segregate from yolk and undergo a stereotypical polarized translocation during yolk-cytoplasm separation. In our quest for the mechanical function of yolk-cytoplasm separation, we genetically disrupted distinct aspects of LD segregation and polarized distribution. We observed a common phenotype of reduced packing at the yolk surface, and increased flow of both naturally existing and artificially introduced rheology probes in the yolk region, indicative of perturbed yolk compaction and an apparent increase in cytoplasmic fluidity. We determined that microtubule dynamics, but not myosin contractility, drives the flow in the yolk cytoplasm. We went on to investigate the morphogenetic consequence of the flow and found that the membranes of newly formed blastoderm display dramatic lateral vibrational movement and undamped fluctuations along the apical-basal axis during cellularization. During gastrulation, we observed a loss of stable tissue deformation in all epithelial folds, irrespective of the distinct active mechanisms of cell surface mechanics that initiate these folds, suggesting that epithelial out-of-plane deformation requires a rigid yolk substrate. In sum, these data suggest a non-metabolic, mechanical function for the yolk in addition to its well characterized nutritional role. Yolk-LD segregation is essential for yolk compaction, which rigidifies the embryo interior to dampen flows resulting from microtubule stresses, thereby ensuring stable and productive tissue deformation during gastrulation.