Efficient tissue regeneration is dependent on the coordinated responses of multiple cell types. Here, we describe a new subpopulation of fibro/adipogenic progenitors (FAPs) resident in muscle tissue but arising from a distinct developmental lineage. Transplantation of purified FAPs results in the generation of ectopic white fat when delivered subcutaneously or intramuscularly in a model of fatty infiltration, but not in healthy muscle, suggesting that the environment controls their engraftment. These cells are quiescent in intact muscle but proliferate efficiently in response to damage. FAPs do not generate myofibres, but enhance the rate of differentiation of primary myogenic progenitors in co-cultivation experiments. In summary, FAPs expand upon damage to provide a transient source of pro-differentiation signals for proliferating myogenic progenitors.