The specialization of cells is a hallmark of complex multicellularity. Cell differentiation enables the emergence of specialized cell types that carry out segregated functions which are previously executed by a multifunctional ancestor cell. Yet, it is still unclear why cell differentiation evolved in the first place, especially for genetically identical cells, exposed to the same life history environment. Stochasticity in gene expression has been proposed to account for cell differentiation. We develop a theoretical model to investigate the effect of dynamic cell differentiation — cells can change their developmental trajectories during a single round of development — on the evolution of their cell differentiation strategy. We found that in small organisms, irreversible differentiation – a cell type gradually losing its cell differentiation capability to produce other cell types – classified based on the differentiation capability at the last cell division, is favoured over other differentiation strategies under dynamic cell differentiation. Dynamic cell differentiation allows a wide range of differentiation strategies, allowing more evolutionary possibilities than static cell differentiation.