Skin scarring, the end result of adult wound healing, is detrimental to tissue form and function. Engrailed-1 lineage-positive fibroblasts (EPFs) are known to function in scarring, but Engrailed-1 lineage-negative fibroblasts (ENFs) remain poorly characterized. Using cell transplantation and transgenic mouse models, we identified a dermal ENF subpopulation that gives rise to postnatally derived EPFs by activating Engrailed-1 expression during adult wound healing. By studying ENF responses to substrate mechanics, we found that mechanical tension drives Engrailed-1 activation via canonical mechanotransduction signaling. Finally, we showed that blocking mechanotransduction signaling with either verteporfin, an inhibitor of Yes-associated protein (YAP), or fibroblast-specific transgenic YAP knockout prevents Engrailed-1 activation and promotes wound regeneration by ENFs, with recovery of skin appendages, ultrastructure, and mechanical strength. This finding suggests that there are two possible outcomes to postnatal wound healing: a fibrotic response (EPF-mediated) and a regenerative response (ENF-mediated).