Finishing a basement. What to do with the vapour barrier?

No. Do not put vapor barrier (vapor retarder) against the concrete. In fact, do not use it at all.

The concrete should already have a waterproof membrane on the outside of the wall between the exterior dirt and the concrete foundation. If you put a vapor barrier against the inside wall, you will in effect trap moisture between both vapor retarders. Not a good thing to do. If you want to avoid problems with moisture, you need to use EPS foam boards (polystyrene), 3/4" thick between furring strips, the type that has NO foil face, Then 1/2" drywall, then a flat latex paint. The idea is to allow the wall to breath. It is in fact the opposite of what you are wanting to do. See this website for more info: http://www.waterproof.com/finish.html

If you are wondering why I keep referring to it as a vapor retarder, type it into Yahoo and you will see why.

Don't use vapor barrier at all.

According to the US Department of Energy's Building America Best Practices recommendation, typical wall moisture should be allowed to evaporate into the basement and not be trapped against the wall.

Avoid also wood studs or furry strips straight against the concrete wall, as well as fiberglass insulation.

They recommend the use of rigid foam boards directly against the wall, and furry strips should be place on top of the boards to hang the drywall.

Of you plan to hang shelves, big screen TVs or anything heavy on the walls consider using insulated, cement cored basement wall systems instead. They offer insulation, the finished look and give you sturdier walls to hang stuff on.

With the added benefit that, unlike drywall, they will not grow mold or get ruined if you have a plumbing leak or any type of flood in the basement.