Plaster walls deteriorate rapidly once they have become saturated. Although it is still used in modern building construction as a covering, or topcoat, over drywall to provide a nice, smooth finish, plaster is no longer used as the main material for building walls. When the plaster wall of an older building sustains damage from water, the issue of how it became wet in the first place should be addressed and resolved. There is probably a leak somewhere that must be fixed, otherwise the problem will persist to the point of complete destruction of the entire wall.
Cover your eyes with safety goggles or some other form of protection. The dust from plaster can cause serious damage to the eyes. If you have sensitive skin, disposable gloves are recommended for the duration of the project, as well.
Remove the damp plaster area of the wall using a curved metal object. The rounded part of a can opener works surprising well. Use a scooping motion to dig a little hole in the wall and scoop out all of the damp plaster. Keep digging and scooping a little at a time to remove a small amount of the dry plaster underneath the wet section.
Use a dry lint-free cloth to remove the plaster dust. Moisten another lint-free cloth with water and dab the rim of the hole with it.
Follow the directions on the package of interior patching plaster to prepare an appropriate sized batch for your project. Use a putty knife to press the plaster firmly into place, filling about half of the hole. Use the utility knife to etch several shallow lines into the fill, which will roughen the finish and encourage the next layer of material to adhere to it well. Dry the filled section thoroughly, using the package instructions as a guide for time frame.
Use a damp cloth to moisten the filled area. Firmly press patching plaster into the indentation until the hole is now about ¾ full. Dry the filled section thoroughly before proceeding.
Moisten the filled area with a damp cloth. Press enough plaster into the hole with the putty knife to fill it, levelling it flush to the surrounding wall using the putty knife. Wipe the knife clean and dip it in water, and use it to blend the new plaster into the old wall.
Texture the damp patch by imprinting it with a rough surface to match the rest of the wall. Often the cardboard from a writing pad works very well for this. Or dry the patch completely, then sand and paint it to match.