Understanding how neural circuits are regenerated following injury is a fundamental question in neuroscience. Hydra is a powerful model for studying this process because it has a simple neural circuit structure, significant and reproducible regenerative abilities, and established methods for creating transgenics with cell-type-specific expression. While Hydra is a long-standing model for regeneration and development, little is known about how neural activity and behavior is restored following significant injury. In this study, we ask if regenerating neurons terminally differentiate prior to reforming functional neural circuits, or if neural circuits regenerate first and then guide the constituent naive cells toward their terminal fate. To address this question, we developed a dual-expression transgenic Hydra line that expresses a cell-type-specific red fluorescent protein (tdTomato) in ec5 peduncle neurons, and a calcium indicator (GCaMP7s) in all neurons. With this transgenic line, we can simultaneously record neural activity and track the reappearance of the terminally-differentiated ec5 neurons. Using SCAPE (Swept Confocally Aligned Planar Excitation) microscopy, we monitored both calcium activity and expression of tdTomato-positive neurons in 3D with single-cell resolution during regeneration of Hydra's aboral end. The synchronized neural activity associated with a regenerated neural circuit was observed approximately 4 to 8 hours after expression of tdTomato in ec5 neurons. These data suggest that regenerating ec5 neurons undergo terminal differentiation prior to re-establishing their functional role in the nervous system. The combination of dynamic imaging of neural activity and gene expression during regeneration make Hydra a powerful model system for understanding the key molecular and functional processes involved in neural regeneration following injury.