The most promising treatment for stress urinary incontinence can be a cell therapy. We suggest human amniotic fluid stem cells (hAFSCs) as an alternative cell source. We established the optimum in vitro protocol for the differentiation from hAFSCs into muscle progenitors. These progenitors were transplanted into the injured urethral sphincter and their therapeutic effect was analyzed. For the development of an efficient differentiation system in vitro, we examined a commercial medium, co-culture and conditioned medium (CM) systems. After being treated with CM, hAFSCs were effectively developed into a muscle lineage. The progenitors were integrated into the host urethral sphincter and the host cell differentiation was stimulated in vivo. Urodynamic analysis showed significant increase of leak point pressure and closing pressure. Immunohistochemistry revealed the regeneration of circular muscle mass with normal appearance. Molecular analysis observed the expression of a larger number of target markers. In the immunogenicity analysis, the progenitor group had a scant CD8 lymphocyte. In tumorigenicity, the progenitors showed no teratoma formation. These results suggest that hAFSCs can effectively be differentiated into muscle progenitors in CM and that the hAFSC-derived muscle progenitors are an accessible cell source for the regeneration of injured urethral sphincter.