Significance: In early gestation, fetal skin wounds undergo regeneration and healing without a scar. This phenomenon is intrinsic to early fetal skin but disappears during late gestation. Adult wounds undergo repair via a fibroproliferative response that leads to incomplete regeneration of the original tissue and a resultant scar. This outcome can have devastating effects for patients and is a significant financial burden to the healthcare system. Recent Advances: Studies have demonstrated the possible role of several stem cells in wound healing. In particular, epidermal stem cells and mesenchymal stem cells have been implicated in wound repair and regeneration. Recently, stem cells with adult epidermal stem cell markers have been found in fetal skin dermis. These cells are thought to play a role in scarless fetal wound healing. Critical Issues: Despite numerous studies on scarless fetal wound healing, the exact mechanism is still largely unknown. Although inflammation is greatly reduced, the stem cell profile of regenerating fetal skin wounds remains unknown. Without a detailed understanding of stem cell differences between fetal and adult wounds, the ability to prevent or treat both normal and pathologic excessive scarring, in the form of keloids and hypertrophic scars, is limited. Future Directions: Further studies on differences between fetal and adult skin-specific stem cells may elucidate the mechanism of scarless wound healing in the early fetus. With this knowledge, the potential to reduce scarring in adult wounds may be achieved.