Rhabdomyosarcoma (RMS) is the most common soft tissue sarcoma of childhood. RMS can be parsed based on clinical outcome into two subtypes, fusion-positive RMS (FP-RMS) or fusion-negative RMS (FN-RMS) based on the presence or absence of either PAX3-FOXO1 or PAX7-FOXO1 gene fusions. In both RMS subtypes, tumor cells show histology and a gene expression pattern resembling that of developmentally arrested skeletal muscle. Differentiation therapy is an attractive approach to embryonal tumors of childhood including RMS; however, agents to drive RMS differentiation have not entered the clinic and their mechanisms remain unclear. MicroRNA-206 (miR-206) expression increases through normal muscle development and has decreased levels in RMS compared with normal skeletal muscle. Increasing miR-206 expression drives differentiation of RMS, but the target genes responsible for the relief of the development arrest are largely unknown. Using a combinatorial approach with gene and proteomic profiling coupled with genetic rescue, we identified key miR-206 targets responsible for the FN-RMS differentiation blockade, PAX7, PAX3, NOTCH3, and CCND2. Specifically, we determined that PAX7 downregulation is necessary for miR-206-induced cell cycle exit and myogenic differentiation in FN-RMS but not in FP-RMS. Gene knockdown of targets necessary for miR-206-induced differentiation alone or in combination was not sufficient to phenocopy the differentiation phenotype from miR-206, thus illustrating that miR-206 replacement offers the ability to modulate a complex network of genes responsible for the developmental arrest in FN-RMS. Genetic deletion of miR-206 in a mouse model of FN-RMS accelerated and exacerbated tumor development, indicating that both in vitro and in vivo miR-206 acts as a tumor suppressor in FN-RMS at least partially through downregulation of PAX7. Collectively, our results illustrate that miR-206 relieves the differentiation arrest in FN-RMS and suggests that miR-206 replacement could be a potential therapeutic differentiation strategy.