The tips of mammalian digits can regenerate after amputation1,2, like those of amphibians. It is unknown why this capacity is limited to the area associated with the nail2-4. Here we show that nail stem cells (NSCs) reside in the proximal nail matrix and that the mechanisms governing NSC differentiation are coupled directly with their ability to orchestrate digit regeneration. Early nail progenitors undergo Wnt-dependent differentiation into the nail. After amputation, this Wnt activation is required for nail regeneration and also for attracting nerves that promote mesenchymal blastema growth, leading to the regeneration of the digit. Amputations proximal to the Wnt-active nail progenitors result in failure to regenerate the nail or digit. Nevertheless, β-catenin stabilization in the NSC region induced their regeneration. These results establish a link between NSC differentiation and digit regeneration, and suggest that NSCs may have the potential to contribute to the development of novel treatments for amputees.