Recent studies have shown that myostatin, first identified as a negative regulator of skeletal muscle growth, may also be involved in the formation of fibrosis within skeletal muscle. In this study, we further explored the potential role of myostatin in skeletal muscle fibrosis, as well as its interaction with both transforming growth factor-beta1 and decorin. We discovered that myostatin stimulated fibroblast proliferation in vitro and induced its differentiation into myofibroblasts. We further found that transforming growth factor-beta1 stimulated myostatin expression, and conversely, myostatin stimulated transforming growth factor-beta1 secretion in C2C12 myoblasts. Decorin, a small leucine-rich proteoglycan, was found to neutralize the effects of myostatin in both fibroblasts and myoblasts. Moreover, decorin up-regulated the expression of follistatin, an antagonist of myostatin. The results of in vivo experiments showed that myostatin knock-out mice developed significantly less fibrosis and displayed better skeletal muscle regeneration when compared with wild-type mice at 2 and 4 weeks following gastrocnemius muscle laceration injury. In wild-type mice, we found that transforming growth factor-beta1 and myostatin co-localize in myofibers in the early stages of injury. Recombinant myostatin protein stimulated myofibers to express transforming growth factor-beta1 in skeletal muscles at early time points following injection. In summary, these findings define a fibrogenic property of myostatin and suggest the existence of co-regulatory relationships between transforming growth factor-beta1, myostatin, and decorin.