Purpose: The mechanisms driving epithelial cell fate decisions to create differentiated body structures (such as tentacles and basal disk) are not understood in Hydra. We explored the role of Wnt signaling targets Zic4 and Sp5 in this process. Methods: RNA sequencing of differentiated body parts (tentacles) upon knockdowns of the candidate transcription factors. Comparison to existing datasets for body part identity and cell lineage. Results: Upon Zic4 knockdown, tentacle battery cells transdifferentiate into the basal disk cells in a cell-cycle dependent manner. Similar results are obtained after the knockdown of Sp5, a positive regulator of Zic4 transcription, and their double knockdown enhances the phenotype. Conclusions:We conclude that Zic4 acts as a master regulator to control the choice between two epidermal cell fates – battery cell and basal disk identity. It represses the basal disk specification, which appears to be the default epidermal epithelial differentiation trajectory. We also show evidence for transdifferentiation in Hydra. Overall design: mRNA profiles of mock, Zic4 RNAi, Sp5 RNAi, and Zic4/Sp5 RNAi tentacles