Skeletal muscle is a regenerative tissue which can repair damaged myofibers through the activation of tissue-resident muscle stem cells (MuSCs). Many muscle diseases with impaired regeneration cause excessive adipose tissue accumulation in muscle, alter the myogenic fate of MuSCs, and deregulate the cross-talk between MuSCs and fibro/adipogenic progenitors (FAPs), a bi-potent cell population which supports myogenesis and controls intra-muscular fibrosis and adipocyte formation. In order to better characterize the interaction between adipogenesis and myogenesis, we studied muscle regeneration and MuSC function in whole body <i>Pparg</i> null mice generated by epiblast-specific Cre/lox deletion ( <i>Pparg ^Δ/Δ</i> ). We demonstrate that deletion of PPARγ completely abolishes ectopic muscle adipogenesis during regeneration and impairs MuSC expansion and myogenesis after injury. Ex vivo assays revealed that perturbed myogenesis in <i>Pparg ^Δ/Δ</i> mice does not primarily result from intrinsic defects of MuSCs or from perturbed myogenic support from FAPs. The immune transition from a pro- to anti-inflammatory MuSC niche during regeneration is perturbed in <i>Pparg ^Δ/Δ</i> mice and suggests that PPARγ signaling in macrophages can interact with ectopic adipogenesis and influence muscle regeneration. Altogether, our study demonstrates that a PPARγ-dependent adipogenic response regulates muscle fat infiltration during regeneration and that PPARγ is required for MuSC function and efficient muscle repair.