Stem cells are cells with the ability for self-renewal and differentiation into a myriad of cellular lineages. Here, we discuss their potential in skin regeneration, focusing on traumatic and nontraumatic healing and scarring. We identify and elaborate on the various types involved, including embryonic stem cells (ESCs) and ESC-like cells, induced pluripotent stem cells (iPSCs), and mesenchymal stem cells (MSCs). We discuss the role of iPSCs and MSCs in attenuating inflammation and fibrosis, thus promoting wound closure in models of defective wound healing and reducing both normal and aberrant scarring (i.e., keloids). In particular, we focus on MSCs and fibrotic changes, detailing their inhibitory function in TGFb/Smad signaling, and thus postinjury scar formation. Furthermore, we elaborate on ESCs and ESCs-like populations, discussing applications in normal skin appendage regeneration and recovery of nonhealing wounds, while ESCs-like cells function as a potential source of profibrotic keloid myofibroblasts. Although ESCs-like populations are implicated in scarring, the discussed studies posit that harnessing certain stem cell subpopulations could be an attractive strategy for rapid, scarless wound healing. This has implications in conditions of chronic inflammation and impaired healing and vascularity (e.g., diabetes) as well as traumatic conditions that necessitate rapid skin regeneration, such as burns.