Abstract Introduction Stimulating the commitment of implanted dystrophin+ muscle-derived stem cells (MDSCs) into myogenic, as opposed to lipofibrogenic lineages, is a promising therapeutic strategy for Duchenne muscular dystrophy (DMD). Methods To examine whether counteracting myostatin, a negative regulator of muscle mass and a pro-lipofibrotic factor, would help this process, we compared the in vitro myogenic and fibrogenic capacity of MDSCs from wild-type (WT) and myostatin knockout (Mst KO) mice under various modulators, the expression of key stem cell and myogenic genes, and the capacity of these MDSCs to repair the injured gastrocnemius in aged dystrophic mdx mice with exacerbated lipofibrosis. Results Surprisingly, the potent in vitro myotube formation by WT MDSCs was refractory to modulators of myostatin expression or activity, and the Mst KO MDSCs failed to form myotubes under various conditions, despite both MDSC expressing Oct 4 and various stem cell genes and differentiating into nonmyogenic lineages. The genetic inactivation of myostatin in MDSCs was associated with silencing of critical genes for early myogenesis (Actc1, Acta1, and MyoD). WT MDSCs implanted into the injured gastrocnemius of aged mdx mice significantly improved myofiber repair and reduced fat deposition and, to a lesser extent, fibrosis. In contrast to their in vitro behavior, Mst KO MDSCs in vivo also significantly improved myofiber repair, but had few effects on lipofibrotic degeneration. Conclusions Although WT MDSCs are very myogenic in culture and stimulate muscle repair after injury in the aged mdx mouse, myostatin genetic inactivation blocks myotube formation in vitro, but the myogenic capacity is recovered in vivo under the influence of the myostatin+ host-tissue environment, presumably by reactivation of key genes originally silenced in the Mst KO MDSCs.