To investigate the roles of thiol proteases such as cathepsins and calpains in muscle differentiation, we have treated primary cultures of pectoralis muscle with a variety of protease inhibitors and examined the effects these agents have on myoblast fusion and myofibrillogenesis. We have found that a membrane‐permeable inhibitor, E64D, has dramatic effects on both events of muscle differentiation. Cells treated with this inhibitor display gross morphological changes, severe delays in myofibril assembly, and reduced ability to fuse in culture. These morphological changes are correlated with a build up of β1‐integrin throughout the cytoplasm. These effects could also be produced using NH4Cl, a lysosomotrophic agent. In addition, we show that two nonpermeable inhibitors (leupeptin and E64) slightly decrease myoblast fusion, but have no effects on the ability of the cells to form mature myofibrils. These results are discussed in terms of their relevance to the inheritable disease of muscular dystrophy and I‐cell disease (mucolipodosis II). Cell Motil. Cytoskeleton 40:354–367, 1998. © 1998 Wiley‐Liss, Inc.