Recovery from skeletal muscle injury is often incomplete because of the formation of fibrosis and inadequate myofiber regeneration; therefore, injured muscle could benefit significantly from therapies that both stimulate muscle regeneration and inhibit fibrosis. To this end, we focused on blocking myostatin, a member of the transforming growth factor–β superfamily and a negative regulator of muscle regeneration, with the myostatin antagonist follistatin. In vivo, follistatin-overexpressing transgenic mice underwent significantly greater myofiber regeneration and had less fibrosis formation compared with wild-type mice after skeletal muscle injury. Follistatin's mode of action is likely due to its ability to block myostatin and enhance neovacularization. Furthermore, muscle progenitor cells isolated from follistatin-overexpressing mice were significantly superior to muscle progenitors isolated from wild-type mice at regenerating dystrophin-positive myofibers when transplanted into the skeletal muscle of dystrophic mdx/severe combined immunodeficiency mice. In vitro, follistatin stimulated myoblasts to express MyoD, Myf5, and myogenin, which are myogenic transcription factors that promote myogenic differentiation. Moreover, follistatin's ability to enhance muscle differentiation is at least partially due to its ability to block myostatin, activin A, and transforming growth factor–β1, all of which are negative regulators of muscle cell differentiation. The findings of this study suggest that follistatin is a promising agent for improving skeletal muscle healing after injury and muscle diseases, such as the muscular dystrophies.