Sca-1 (Stem Cell Antigen-1) is a member of the Ly-6 family proteins that functions in cell growth, differentiation, and self-renewal in multiple tissues. In skeletal muscle Sca-1 negatively regulates myoblast proliferation and differentiation, and may function in the maintenance of progenitor cells. We investigated the role of Sca-1 in skeletal muscle regeneration and show here that Sca-1 expression is upregulated in a subset of myogenic cells upon muscle injury. We demonstrate that extract from crushed muscle upregulates Sca-1 expression in myoblasts in vitro, and that this effect is reversible and independent of cell proliferation. Sca-1(-/-) mice exhibit defects in muscle regeneration, with the development of fibrosis following injury. Sca-1(-/-) muscle displays reduced activity of matrix metalloproteinases, critical regulators of extracellular matrix remodeling. Interestingly, we show that the number of satellite cells is similar in wild-type and Sca-1(-/-) muscle, suggesting that in satellite cells Sca-1 does not play a role in self-renewal. We hypothesize that Sca-1 upregulates, directly or indirectly, the activity of matrix metalloproteinases, leading to matrix breakdown and efficient muscle regeneration. Further elucidation of the role of Sca-1 in matrix remodeling may aid in the development of novel therapeutic strategies for the treatment of fibrotic diseases.