Over 100 years of sponge biology research has demonstrated spectacular diversity of cell behaviors during embryonic development, metamorphosis and regeneration. The past two decades have allowed the first glimpses into molecular and cellular mechanisms of these processes. We have learned that while embryonic development of sponges utilizes a conserved set of developmental regulatory genes known from other animals, sponge cell differentiation appears unusually labile. During normal development, and especially as a response to injury, sponge cells appear to have an uncanny ability to transdifferentiate. Here, I argue that sponge cell differentiation plasticity does not preclude homology of cell types and processes between sponges and other animals. Instead, it does provide a wonderful opportunity to better understand transdifferentiation processes in all animals.