Turkish Lira is the official currency in Northern Cyprus, however you will find that British Pounds is widely also widely used.
Turkish Lira is not recommended to bring as the exchange rates are much better in Northern Cyprus than they are in the UK so if you arrive with just Sterling, Euros or US Dollars you will see that most business owners will take the currency and give you any change in Turkish Lira.
However, you will most likely get better exchange rates at the local banks and exchange offices in North Cyprus. All these currencies are widely used in hotels, restaurants and supermarkets. British Pounds is, however, the best form of currency to bring.
If you don`t feel comfortable carrying large amounts of cash, then you can bring euro cheques and traveller cheques as they are accepted and easily exchanged in hotels, banks and exchange bureaux.