This is one that I see mixed up all the time. There’s quite a simple division between them, though.
A principal is the top person in a group. So the leader of a school is the Principal. Following on from this use, it also means first or main – “My principal interest is football but I don’t mind watching a bit of rugby”; “The firm’s principal area of operation is construction schools”. It’s also a noun used to describe a sum of money invested or lent on which interest is paid.
A principle is a belief or a rule which governs your personal behaviour, as well as a natural law or general scientific theorem.
“The school Principal works from principles of care, respect and the importance of good discipline. The principal principle is respect – that’s the most important one. Everything else matters, but that matters most.”
And a little bonus: “principality” – a state ruled by a prince
For more troublesome pairs, click on the category cloud over to the right, or click here.