Pax3/7-dependent stem cells play an essential role in skeletal muscle development. We now show that Fgfr4 lies genetically downstream from Pax3 and is a direct target. In chromatin immunoprecipitation (ChIP)-on-chip experiments, Pax3 binds to a sequence 3' of the Fgfr4 gene that directs Pax3-dependent expression at sites of myogenesis in transgenic mouse embryos. The activity of this regulatory element is also partially dependent on E-boxes, targets of the myogenic regulatory factors, which are expressed as progenitor cells enter the myogenic program. Other FGF signaling components, notably Sprouty1, are also regulated by Pax3. In vivo manipulation of Sprouty expression reveals that FGF signaling affects the balance between Pax-positive progenitor cells and committed myoblasts. These results provide new insight into the Pax-initiated regulatory network that modulates stem cell maintenance versus tissue differentiation.