Massive tears of the rotator cuff (RC) are associated with chronic muscle degeneration due to fibrosis, fatty infiltration, and muscle atrophy. The microenvironment of diseased muscle often impairs efficient engraftment and regenerative activity of transplanted myogenic precursors. Accumulating myofibroblasts and fat cells disrupt the muscle stem cell niche and myogenic cell signaling and deposit excess disorganized connective tissue. Therefore, restoration of the damaged stromal niche with non-fibro-adipogenic cells is a prerequisite to successful repair of an injured RC. We generated from human embryonic stem cells (hES) a potentially novel subset of PDGFR-β+CD146+CD34-CD56- pericytes that lack expression of the fibro-adipogenic cell marker PDGFR-α. Accordingly, the PDGFR-β+PDGFR-α- phenotype typified non-fibro-adipogenic, non-myogenic, pericyte-like derivatives that maintained non-fibro-adipogenic properties when transplanted into chronically injured murine RCs. Although administered hES pericytes inhibited developing fibrosis at early and late stages of progressive muscle degeneration, transplanted PDGFR-β+PDGFR-α+ human muscle-derived fibro-adipogenic progenitors contributed to adipogenesis and greater fibrosis. Additionally, transplanted hES pericytes substantially attenuated muscle atrophy at all tested injection time points after injury. Coinciding with this observation, conditioned medium from cultured hES pericytes rescued atrophic myotubes in vitro. These findings imply that non-fibro-adipogenic hES pericytes recapitulate the myogenic stromal niche and may be used to improve cell-based treatments for chronic muscle disorders.