This pair of words has been stumping people forever, and no wonder— they have rather similar meanings, and one of them (principal) has three meanings.
The word principle is always a noun and it is always a thing (not a person). Principle means a standard, basic truth, law or rule. A principle can be theoretical (the osmosis principle) or moral (standing up for your principles).
The word principal is a bit messier.
One way to differentiate between these words:
My pal the principal is the prince of the school.