The Thickness Problem
Original three-coat plaster is typically 7/8 inch thick. Standard 1/2-inch drywall is, obviously, 1/2 inch. That's a 3/8-inch difference, which sounds minor until you're trying to make two surfaces meet cleanly at a seam.
My first attempt: I cut the damaged plaster back to solid material, framed out the opening with blocking between the studs, and hung 1/2-inch drywall. The patch sat 3/8 of an inch lower than the surrounding wall. I tried to feather it out with joint compound. Six coats later, I had a visible hump at the transition that you could see from across the room when the light was at the wrong angle.
Dave's wife noticed it immediately. "It looks like there's a speed bump on our wall." She wasn't wrong.
The fix I should have used from the start: shim the drywall out to match plaster depth. You can do this with layers of drywall itself. Cut a piece of 1/4-inch drywall and glue it to the back of your patch panel before hanging it, or use 3/8-inch drywall plus a layer of construction adhesive, or use 1/2-inch drywall shimmed out from the framing with strips of 3/8-inch plywood. There's no single elegant solution. You're just trying to get the face of the patch flush with the face of the plaster.
What Actually Worked
We demoed Dave's first patch, cut the plaster opening back further to get clean edges, and this time measured the plaster thickness carefully. It varied slightly across the wall, 13/16 to 15/16 of an inch in different spots. We went with the average and used 1/2-inch drywall over a 3/8-inch plywood backer.
The assembly: cut the plywood backer slightly smaller than the drywall patch, glue it to the back of the drywall with construction adhesive, let it set, then hang the composite piece. The combined thickness came out close enough to the plaster depth that we could feather the transition with two coats of compound rather than six.
Still took some work. The edge of plaster where it meets drywall is a rough transition no matter what, and you need to apply mesh tape over the seam and build it up carefully. The mesh tape bridges the material difference and gives the compound something to key into on both sides.
The Texture Matching Situation
Meridian-Kessler Craftsman homes have smooth plaster walls. No texture, or very subtle skip trowel left by the original plasterers. Matching smooth plaster with drywall compound is hard. The plaster surface has a hardness and slight texture from the original lime finish coat that joint compound just doesn't replicate exactly.
We skim-coated the entire patch with setting compound (hot mud) for a first coat, then finished with pre-mixed topping compound. Sanded carefully with 120-grit then 220-grit. The result was acceptably close but you can still see a difference if you're looking for it under raking light. Under normal room lighting and after painting, it's invisible.
If Dave had wanted a perfect match, the right answer would have been a professional plasterer doing a lime plaster repair. That would have cost $400 to $600 for that section, versus the $40 we spent on materials for the drywall approach. He was fine with the drywall result. For a high-end renovation where the walls are the feature, I'd point people toward a plasterer.
One More Indianapolis-Specific Issue
The reason there was water damage in the first place was a slow leak from the supply line to the upstairs bathroom. That had been dripping behind the tile for long enough to wet the plaster repeatedly. When we opened it up, there was also some dark staining on the wood lath that the inspector had noted as possible mold.
We had it tested. It was mold. Not a huge amount, but enough to deal with properly. Before any patching, we cleaned the lath with a mold-killing solution, let it dry for two weeks with a fan running, and had it tested again before closing the wall.
This is more common in older Indianapolis homes than people expect. The older Irvington and Fountain Square neighborhoods have similar issues with aging supply lines. If you're opening a wall in an older Indy home and find staining or soft plaster that's been wet repeatedly, factor in the possibility that you're dealing with more than just a patch job. Testing first costs about $50 and saves a lot of problems.