Post-transcriptional switches are flexible effectors of dynamic changes in gene expression. Here we report a new post-transcriptional switch that dictates the spatiotemporal and mutually exclusive expression of two alternative gene products from a single transcript. Expression of primate-specific exonic microRNA-198 (miR-198), located in the 3'-untranslated region of follistatin-like 1 (FSTL1) messenger RNA, switches to expression of the linked open reading frame of FSTL1 upon wounding in a human ex vivo organ culture system. We show that binding of a KH-type splicing regulatory protein (KSRP, also known as KHSRP) to the primary transcript determines the fate of the transcript and is essential for the processing of miR-198: transforming growth factor-β signalling switches off miR-198 expression by downregulating KSRP, and promotes FSTL1 protein expression. We also show that FSTL1 expression promotes keratinocyte migration, whereas miR-198 expression has the opposite effect by targeting and inhibiting DIAPH1, PLAU and LAMC2. A clear inverse correlation between the expression pattern of FSTL1 (pro-migratory) and miR-198 (anti-migratory) highlights the importance of this regulatory switch in controlling context-specific gene expression to orchestrate wound re-epithelialization. The deleterious effect of failure of this switch is apparent in non-healing chronic diabetic ulcers, in which expression of miR-198 persists, FSTL1 is absent, and keratinocyte migration, re-epithelialization and wound healing all fail to occur.