Tissue repair is a protective response after injury, but repetitive or prolonged injury can lead to fibrosis, a pathological state of excessive scarring. To pinpoint the dynamic mechanisms underlying fibrosis, it is important to understand the principles of the cell circuits that carry out tissue repair. In this study, we establish a cell-circuit framework for the myofibroblast-macrophage circuit in wound healing, including the accumulation of scar-forming extracellular matrix. We find that fibrosis results from multistability between three outcomes, which we term "hot fibrosis" characterized by many macrophages, "cold fibrosis" lacking macrophages, and normal wound healing. This framework clarifies several unexplained phenomena including the paradoxical effect of macrophage depletion, the limited time-window in which removing inflammation leads to healing, and why scar maturation takes months. We define key parameters that control the transition from healing to fibrosis, which may serve as potential targets for therapeutic reduction of fibrosis.