The developing fetus has the remarkable ability to heal dermal skin wounds by regenerating normal epidermis and dermis with restoration of the extracellular matrix architecture, strength, and function. The biology responsible for scarless wound healing in skin is a paradigm for ideal tissue repair. This regenerative capacity is lost in late gestation when fetal wounds heal with fibrosis and scar. Early in gestation, fetal skin is developing at a rapid pace in a unique environment. Investigation of normal skin embryogenesis and comparison between early scarless and late scarring fetal wounds has revealed distinct differences in inflammatory response, cellular mediators, wound contraction, cytokines, growth factors, and extracellular matrix modulators. The knowledge gained from comparative observational studies has served as a base for experimental interventions in animal models to induce or ameliorate scar. Although much progress has been made over the past decade, the mechanism of fetal wound healing remains largely unknown and attempts to mimic the scarless wound phenotype have not been completely successful. Identification of more key genes involved in skin regeneration may have implications in adult skin wounds and repair in other organ systems.