Ectopic fat deposition in skeletal muscle is closely associated with several disorders, however, the origin of these adipocytes is not clear, nor is the mechanism of their formation. Satellite cells function as adult muscle stem cells but are proposed to possess multipotency. Here, we prospectively identify PDGFRalpha(+) mesenchymal progenitors as being distinct from satellite cells and located in the muscle interstitium. We show that, of the muscle-derived cell populations, only PDGFRalpha(+) cells show efficient adipogenic differentiation both in vitro and in vivo. Reciprocal transplantations between regenerating and degenerating muscles, and co-culture experiments revealed that adipogenesis of PDGFRalpha(+) cells is strongly inhibited by the presence of satellite cell-derived myofibres. These results suggest that PDGFRalpha(+) mesenchymal progenitors are the major contributor to ectopic fat cell formation in skeletal muscle, and emphasize that interaction between muscle cells and PDGFRalpha(+) mesenchymal progenitors, not the fate decision of satellite cells, has a considerable impact on muscle homeostasis.