When proofreading or editing documents, we often find that writers are confused about when to capitalize these terms. Here are some rules to follow.
Capitalize north, south, east, west, and derivative words when they designate definite regions or are an integral part of a proper name.
Do not capitalize these words when they merely indicate direction or general location.
Capitalize such words as Northerner, Southerner, and Midwesterner.
Capitalize such words as northern, southern, eastern, and western when they refer to the people in a region or to their political, social, or cultural activities. Do not capitalize these words when they merely indicate general location or refer to the geography or climate of the region.
NOTE: When terms like western region and southern district are used to name organizational units within a company, capitalize them.
When words like northern, southern, eastern, and western precede a place name, they are not ordinarily capitalized, because they merely indicate general location within a region. However, when these words are actually part of the place name, they must be capitalized.
NOTE: Within certain regions it is not uncommon for many who live there to capitalize the adjective because of the special importance they attach to the regional designation. Thus people who live in southern California may prefer to write Southern California.
Source: The Gregg Reference Manual