An increase in intramuscular adipocyte tissue (IMAT) is associated with glucose dysregulation, decreased muscle strength, and increased risk of disability. Unfortunately, the mechanisms stimulating intramuscular adipogenesis remain unclear. We found that dexamethasone (Dex) administration to mice with injured muscles stimulates the accumulation of IMAT. To identify precursors of these adipocytes, we isolated satellite cells and fibro/adipogenic progenitors (FAPs) from muscle; satellite cells did not differentiate into adipocytes even following Dex treatment. In contrast, Dex stimulated FAP differentiation into adipocytes. In vivo, we transplanted purified FAPs from transgenic, EGFP mice into the injured muscles of C57/BL6 mice and found that Dex administration stimulated adipogenesis from FAP-EGFP. The increase in adipogenesis depended on Dex-induced inhibition of interleukin-4 (IL-4). In the injured muscle of IL-4-knockout mice, the levels of adipocytes were increased, while in the injured muscles of Dex-treated mice with IL-4 injections, adipogenesis was suppressed. In cultured FAPs, IL-4 inhibited Dex-induced conversion of FAPs into adipocytes; this did not occur in FAPs expressing knockdown of the IL-4 receptor. Thus, we concluded that glucocorticoids stimulate FAPs to differentiate into adipocytes in injured muscles. This process is blocked by IL-4, suggesting that interfering with IL-4 signaling could prevent adipogenesis in muscle.