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Sharp-1 is a basic helix-loop-helix (bHLH) transcriptional repressor that is involved in a number of cellular processes. Our previous studies have demonstrated that Sharp-1 is a negative regulator of skeletal myogenesis and it blocks differentiation of muscle precursor cells by modulating the activity of MyoD. In order to understand its role in pre- and post-natal myogenesis, we assessed skeletal muscle development and freeze-injury-induced regeneration in Sharp-1-deficient mice. We show that embryonic skeletal muscle development is not impaired in the absence of Sharp-1; however, post-natally, the regenerative capacity is compromised. Although the initial phases of injury-induced regeneration proceed normally in Sharp-1(-/-) mice, during late stages, the mutant muscle exhibits necrotic fibers, calcium deposits and fibrosis. TGF-β expression, as well as levels of phosphorylated Smad2 and Smad3, are sustained in the mutant tissue and treatment with decorin, which blocks TGF-β signaling, improves the histopathology of Sharp-1(-/-) injured muscles. In vitro, Sharp-1 associates with Smad3, and its overexpression inhibits TGF-β- and Smad3-mediated expression of extracellular matrix genes in myofibroblasts. These results demonstrate that Sharp-1 regulates muscle regenerative capacity, at least in part, by modulation of TGF-β signaling.