Polar codes were recently introduced by Ar‡kan. They achieve the capac- ity of arbitrary symmetric binary-input discrete memoryless channels under a low complexity successive cancellation decoding strategy. The original polar code construction is closely related to the recursive construction of Reed-Muller codes and is based on the 2£2 matrix£1 0 1 1. It was shown by Ar‡kan and Telatar that this construction achieves an error exponent of12, i.e., that for su–ciently large blocklengths the error probability decays exponentially in the square root of the length. We flrst generalize the result of Arikan and Telatar by characterizing the exponent of any‘£‘matrix. We derive upper and lower bounds on the achievable exponents and show that the exponent cannot be improved for‘ <15. We also provide a general construction based on BCH codes which for large‘achieves exponents arbitrarily close to 1 and which exceeds12for size 16. We then consider source coding. We show that polar codes with succes- sive cancellation encoding also achieves the optimum rate-distortion tradeofi for a binary symmetric source. Moreover, using these codes we can construct nested codes which achieve the optimum performance of the Wyner-Ziv and Gelfand-Pinsker setups. [The talk is based on joint work with Eren S»a»so‚glu and R˜udiger Urbanke.] 1