Fibrosis in skeletal muscle develops after injury or in response to chronic kidney disease (CKD), but the origin of cells becoming fibrous tissue and the initiating and sustaining mechanisms causing muscle fibrosis are unclear. We identified muscle fibro/adipogenic progenitor cells (FAPs) that potentially differentiate into adipose tissues or fibrosis. We also demonstrated that CKD stimulates myostatin production in muscle. Therefore, we tested whether CKD induces myostatin, which stimulates fibrotic differentiation of FAPs leading to fibrosis in skeletal muscles. We isolated FAPs from mouse muscles and found that myostatin stimulates their proliferation and conversion into fibrocytes. In vivo, FAPs isolated from EGFP-transgenic mice (FAPs-EGFP) were transplanted into muscles of mice with CKD or into mouse muscles that were treated with myostatin. CKD or myostatin stimulated FAPs-EGFP proliferation in muscle and increased α-smooth muscle actin expression in FAP-EGFP cells. When myostatin was inhibited with a neutralizing peptibody (a chimeric peptide-Fc fusion protein), the FAP proliferation and muscle fibrosis induced by CKD were both suppressed. Knocking down Smad3 in cultured FAPs interrupted their conversion into fibrocytes, indicating that myostatin directly converts FAPs into fibrocytes. Thus, counteracting myostatin may be a strategy for preventing the development of fibrosis in skeletal muscles of patients with CKD.