These words are pronounced the same way, but their meanings are different.

“Principal” can be an adjective and a noun.

It is most commonly used as an adjective, meaning “main” or “most important”:

Her principal area of responsibility is economic policy.

The principal reason why we cannot accept his application is because he is not a citizen of an EU member state.

As a noun, the most common meaning of “principal” is:

• Someone who holds a position of leadership, especially the headmaster/headmistress of a school

In the fields of business and law “principal” also has the following meanings:

• A person who authorises another to act as a representative, e.g. an agent or an attorney is authorised by a principal
• A person with the main responsibility for an obligation, as opposed to that person’s surety or guarantor
• A person who commits a criminal offence

“Principal” also has financial meanings:

• The capital or main part of a financial holding, as opposed to the interest or revenue it earns
• The amount of a debt upon which interest is calculated, i.e. the amount borrowed, excluding interest

“Principle” is a noun.

It has two related meanings:

• A basic idea or rule that explains or controls how something works or happens – the principles of democracy, the hereditary principle, the principle of electro-magnetic conduction
• A moral rule or standard of good behaviour – He is a man of principle; That woman has no principles; I do not eat meat on principle; In principle I agree with you