Injured muscle can initiate regeneration promptly by activating myogenic cells that proliferate and differentiate into myotubes and myofibers. However, the recovery of the injured skeletal muscle often is hindered by the development of fibrosis. We hypothesized that the early-appearing myogenic cells in the injured area differentiate into myofibroblasts and eventually contribute to the development of fibrosis. To investigate this, we transplanted a genetically engineered clonal population of muscle-derived stem cells (MC13 cells) into the skeletal muscle of immunodeficient SCID mice, which were lacerated 4 weeks after transplantation. The MC13 cells regenerated numerous myofibers in the nonlacerated muscle and these myogenic cells were gradually replaced by myofibroblastic cells in the injured muscle. Our results suggest that the release of local environmental stimuli after muscle injury triggers the differentiation of myogenic cells (including MC13 cells) into fibrotic cells. These results demonstrate the potential of muscle-derived stem cells to differentiate into different lineages and illustrate the importance of controlling the local environment within the injured tissue to optimize tissue regeneration via the transplantation of stem cells.