Understanding the evolutionary role of environmentally-induced phenotypic variation (i.e., environmental plasticity) is an important issue in developmental evolution. One of the major physiological responses to environmental changes is cellular stress, which is counteracted by a generic stress reaction that detoxifies the cell, refolds proteins, and repairs DNA damage. In this paper, we elaborate on a previous finding suggesting that the cell differentiation cascade of human decidual stromal cells, a cell type critical for embryo implantation and the maintenance of pregnancy, evolved from a cellular stress reaction. We hypothesize that the stress reaction in these cells was elicited ancestrally through the inflammation caused by embryo attachment and invasion. We describe a model, Stress-Induced Evolutionary Innovation (SIEI), whereby ancestral stress reactions and their corresponding pathways can be transformed into novel structural components of body plans, such as new cell types. After reviewing similarities and differences between SIEI and the “plasticity first hypothesis” (PFH) of evolution, we argue that SIEI is a distinct form of plasticity-based evolutionary change because it leads to the origin of novel structures rather than the adaptive transformation of a pre-existing character.