Drywall – Replacing Drywall

Option 3 is the sanest IMHO. You can get a bucket of drywall mud for $15 and do a "skim coat" over the panels to create a flat surface. No need to sand first; this stuff will stick to anything! Once the mud is dry, you can sand it to get a smooth look, or texture it. Texturing can be done with cans of spray-on texture you get at big box stores, or using a texture sprayer gun. A pro will be able to do the texture part much better than a novice, so if you want a textured wall, I recommend hiring that part out for $100 or so. With the right equipment and an operator of moderate skill, it's a 30 minute job. If you've already got an air compressor, you can have a go yourself with a sprayer attachment that has a hopper.

But whatever you do, match the texture or lack thereof to any drywall that abuts the paneled wall. Nothing screams "I used to be wood paneling!!!!!" like strange, awkward texture on a few walls that, upon further investigation, have more give to them when pushed on.

This is the approach I took on my wood paneled walls and today you'd never know the difference.

Mesh and paper tape are really all about adding strength, which is especially important at seams or wherever the paper bonding surface of the underlying drywall may have torn or weakened.

In this case, if you're sure the underlying drywall is sound, then it means that the entire area of repair will be strong and supported from behind. So, joint compound should get the job done and stay strong. I'd suggest using setting type compound (sometimes referred to as "hot mud") for your first layer since it sets up harder and stronger than the drying type topping compound.