We assessed viable Pax7^−/− mice in 129Sv/J background and observed reduced growth and marked muscle wasting together with a complete absence of functional satellite cells. Acute injury resulted in an extreme deficit in muscle regeneration. However, a small number of regenerated myofibers were detected, suggesting the presence of residual myogenic cells in Pax7-deficient muscle. Rare Pax3⁺/MyoD⁺ myoblasts were recovered from Pax7^−/− muscle homogenates and cultures of myofiber bundles but not from single myofibers free of interstitial tissues. Finally, we identified Pax3⁺ cells in the muscle interstitial environment and demonstrated that they coexpressed MyoD during regeneration. Sublaminar satellite cells in hind limb muscle did not express detectable levels of Pax3 protein or messenger RNA. Therefore, we conclude that interstitial Pax3⁺ cells represent a novel myogenic population that is distinct from the sublaminar satellite cell lineage and that Pax7 is essential for the formation of functional myogenic progenitors from sublaminar satellite cells.