Rhabdomyosarcoma (RMS) is a group of pediatric cancers with features of developing skeletal muscle. The cellular hierarchy and mechanisms leading to developmental arrest remain elusive. Here, we combined single-cell RNA sequencing, mass cytometry, and high-content imaging to resolve intratumoral heterogeneity of patient-derived primary RMS cultures. We show that the aggressive alveolar RMS (aRMS) subtype contains plastic muscle stem-like cells and cycling progenitors that drive tumor growth, and a subpopulation of differentiated cells that lost its proliferative potential and correlates with better outcomes. While chemotherapy eliminates cycling progenitors, it enriches aRMS for muscle stem-like cells. We screened for drugs hijacking aRMS toward clinically favorable subpopulations and identified a combination of RAF and MEK inhibitors that potently induces myogenic differentiation and inhibits tumor growth. Overall, our work provides insights into the developmental states underlying aRMS aggressiveness, chemoresistance, and progression and identifies the RAS pathway as a promising therapeutic target.