Regenerative medicine aims to restore normal tissue architecture and function. However, the basis of tissue regeneration in mammalian solid organs remains undefined. Remarkably, mice lacking p21 fully regenerate injured ears without discernable scarring. Here we show that, in wild-type mice following tissue injury, stromal-derived factor-1 (Sdf1) is up-regulated in the wound epidermis and recruits Cxcr4-expressing leukocytes to the injury site. In p21-deficient mice, Sdf1 up-regulation and the subsequent recruitment of Cxcr4-expressing leukocytes are significantly diminished, thereby permitting scarless appendage regeneration. Lineage tracing demonstrates that this regeneration derives from fate-restricted progenitor cells. Pharmacological or genetic disruption of Sdf1-Cxcr4 signaling enhances tissue repair, including full reconstitution of tissue architecture and all cell types. Our findings identify signaling and cellular mechanisms underlying appendage regeneration in mice and suggest new therapeutic approaches for regenerative medicine.