Tissue development requires the controlled regulation of cell-differentiation programs. In muscle, the Mef2 transcription factor binds to and activates the expression of many genes and has a major positive role in the orchestration of differentiation. However, little is known about how Mef2 activity is regulated in vivo during development. Here, we characterize a gene, Holes in muscle (Him), which our results indicate is part of this control in Drosophila. Him expression rapidly declines as embryonic muscle differentiates, and consistent with this, Him overexpression inhibits muscle differentiation. This inhibitory effect is suppressed by mef2, implicating Him in the mef2 pathway. We then found that Him downregulates the transcriptional activity of Mef2 in both cell culture and in vivo. Furthermore, Him protein binds Groucho, a conserved, transcriptional corepressor, through a WRPW motif and requires this motif and groucho function to inhibit both muscle differentiation and Mef2 activity during development. Together, our results identify a mechanism that can inhibit muscle differentiation in vivo. We conclude that a balance of positive and negative inputs, including Mef2, Him, and Groucho, controls muscle differentiation during Drosophila development and suggest that one outcome is to hold developing muscle cells in a state with differentiation genes poised to be expressed.