The developmental potential of the limb regeneration blastema, a mass of mesenchymal cells of mixed origins, was once considered as being pluripotent, capable of forming all cell types. Now evidence asserts that the blastema is a heterogeneous mixture of progenitor cells derived from tissues of the amputation site, with limited developmental potential, plus various stem cells with multipotent abilities. Many specialized cells, bone, cartilage, muscle, and Schwann cells, at the injury site undergo dedifferentiation to a progenitor state and maintain their cell lineage as they redifferentiate in the regenerate. Muscle satellite reserve stem cells that are active in repair of injured muscle may also dedifferentiate and contribute new muscle cells to the limb blastema. Other cells from the dermis act as multipotent stem cells that replenish dermal fibroblasts and differentiate into cartilage. The blastema primordium is a self-organized, equipotential system, but at the cellular level can compensate for specific cell loss. It is able to induce dedifferentiation of introduced exogenous cells and such cells may be transformed into new cell types. Indigenous cells of the blastema associated with amputated tissues may also transform or possibly transdifferentiate into new cell types. The blastema is a microenvironment that enables dedifferentiation, redifferentiation, transdifferentiation, and stem cell activation, leading to progenitor cells of the limb regenerate.