The basis for Hydra's enormous regeneration capacity is the "stem cellness" of its epithelium which continuously undergoes self-renewing mitotic divisions and also has the option to follow differentiation pathways. Now, emerging molecular tools have shed light on the molecular processes controlling these pathways. In this review I discuss how the modular tissue architecture may allow continuous replacement of cells in Hydra. I also describe the discovery and regulation of factors controlling the transition from self-renewing epithelial stem cells to differentiated cells.