Absence of a specialized wound epidermis is hypothesized to block limb regeneration in higher vertebrates. However, the factors preventing its formation in regeneration-incompetent animals are poorly understood. To characterize the endogenous molecular and cellular regulators of specialized wound epidermis formation in Xenopus laevis tadpoles, and the loss of their regeneration-competency during development, we used single-cell transcriptomics and ex vivo regenerating limb cultures. Transcriptomic analysis revealed that the specialized wound epidermis is not a novel cell state, but a re-deployment of the apical-ectodermal-ridge (AER) program underlying limb development. Enrichment of secreted inhibitory factors, including Noggin, a morphogen expressed in developing cartilage/bone progenitor cells, are identified as key inhibitors of AER cell formation in regeneration-incompetent tadpoles. These factors can be overridden by Fgf10, which operates upstream of Noggin and blocks chondrogenesis. These results indicate that manipulation of the extracellular environment and/or chondrogenesis may provide a strategy to restore regeneration potential in higher vertebrates.