Protect the flooring. Place a plastic dropcloth under the wall where you will be working. Tape it down to keep it from shifting around on you. Remove any furniture that is in the way to give yourself enough space to work.
Remove the panel. Use a utility knife to cut the rest of the panel away. If it won't budge, knock the center of the panel with a hammer and pull it free.
Clean up the debris. The wall stud will still have nails or screws with pieces of drywall around them. Remove these and knock away any debris.
Insert a new panel of drywall. Place the drywall in place. Use a cordless screwdriver and insert one drywall screw for every 12 inches vertically on the stud.
Tape off your seams. Place drywall tape over the seams of the new panel. Self-adhesive tape works well and cuts down on the amount of work. Press the tape on firmly.
Apply mud over the tape. Use drywall mud or joint compound to cover the tape. Extend out a few inches on either side of the tape with the mud. Use a putty knife to apply the mud. Scrape off the excess with the side of your knife. Let this set for at least six hours.
Sand down the mud. The joint compound should be flush with the rest of the board. Use a fine grade of sandpaper and sand this down. The panel can now be finished to match the rest of the wall.