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Skeletal muscle regeneration requires the coordinated interplay of diverse tissue-resident- and infiltrating cells. Fibro-adipogenic progenitors (FAPs) are an interstitial cell population that provides a beneficial microenvironment for muscle stem cells (MuSCs) during muscle regeneration. Here we show that the transcription factor Osr1 is essential for FAPs to communicate with MuSCs and infiltrating macrophages, thus coordinating muscle regeneration. Conditional inactivation of Osr1 impaired muscle regeneration with reduced myofiber growth and formation of excessive fibrotic tissue with reduced stiffness. Osr1-deficient FAPs acquired a fibrogenic identity with altered matrix secretion and cytokine expression resulting in impaired MuSC viability, expansion and differentiation. Immune cell profiling suggested a novel role for Osr1-FAPs in macrophage polarization. In vitro analysis suggested that increased TGFβ signaling and altered matrix deposition by Osr1-deficient FAPs actively suppressed regenerative myogenesis. In conclusion, we show that Osr1 is central to FAP function orchestrating key regenerative events such as inflammation, matrix secretion and myogenesis.