Loss of differentiated cells to tissue damage is a hallmark of many diseases. In slow-turnover tissues, long-lived differentiated cells can re-enter the cell cycle or transdifferentiate to another cell type to promote repair. Here, we show that in a high-turnover tissue, severe damage to the differentiated compartment induces progenitors to transiently acquire a unique transcriptional and morphological postmitotic state. We highlight this in an acute villus injury model in the mouse intestine, where we identified a population of progenitor-derived cells that covered injured villi. These atrophy-induced villus epithelial cells (aVECs) were enriched for fetal markers but were differentiated and lineage committed. We further established a role for aVECs in maintaining barrier integrity through the activation of yes-associated protein (YAP). Notably, loss of YAP activity led to impaired villus regeneration. Thus, we define a key repair mechanism involving the activation of a fetal-like program during injury-induced differentiation, a process we term "adaptive differentiation."