Transplantation of amniotic membrane as a temporary or permanent graft promotes epithelial wound healing and exerts potent anti-inflammatory and anti-scarring effects on the ocular surface. These actions depend on the killing of allogeneic amniotic cells and preservation of the cytokine-containing matrix during the preparation of the amniotic membrane. This review describes how these actions inherently operate in utero and how amniotic membrane transplantation aims to recreate such a fetal environment to exert these actions by insulating the surgical site from the host environment. These actions also render the amniotic membrane a unique niche capable of expanding both epithelial and mesenchymal progenitor cells ex vivo, while maintaining their normal cell phenotypes. As a result, the amniotic membrane becomes an ideal substrate for engineering different types of ocular surface tissues for transplantation. Further studies investigating the exact molecular mechanism by which the amniotic membrane works will undoubtedly unravel additional applications in reconstruction and engineering of both ocular and nonocular tissues in the burgeoning field of regenerative medicine.