Abstract Optimal tissue recovery and organismal survival1 are achieved by tight spatiotemporal tuning of tissue inflammation, contraction and scar-formation. Here, we discover a multipotent fibroblast progenitor marked by CD201 expression in the fascia, the deepest connective tissue layer of the skin. Using murine skin injury models, single-cell transcriptomics, and genetic lineage tracing and ablation models, we demonstrate that CD201+ progenitors pace wound healing by generating multiple specialized cell types from proinflammatory fibroblasts to myofibroblasts in a spatiotemporally tuned sequence. We identify retinoic acid and hypoxia signaling as differentiation checkpoints that control the graduated entry of fascia progenitor into the proinflammatory and myofibroblast states. Modulating their differentiation, with retinoic acid and hypoxia-inducible factor 1-alpha, or genetically ablating this cellular lineage, impaired the graduated appearances of specialized fibroblasts and chronically delayed wound healing. The discovery of fascia progenitors, their microenvironment, and the signaling pathways that control the graduated transitions thereof provides a new roadmap to understand and clinically treat impaired wound healing.