Normal skeletal muscle functions are affected following trauma, chronic diseases, inherited neuromuscular disorders, aging, and cachexia, hampering the daily activities and quality of life of the affected patients. The maladaptive accumulation of fibrous intramuscular connective tissue and fat are hallmarks of multiple pathologies where chronic damage and inflammation are not resolved, leading to progressive muscle replacement and tissue degeneration. Muscle-resident fibro-adipogenic progenitors are adaptable stromal cells with multilineage potential. They are required for muscle homeostasis, neuromuscular integrity, and tissue regeneration. Fibro-adipogenic progenitors actively regulate and shape the extracellular matrix and exert immunomodulatory functions via cross-talk with multiple other residents and non-resident muscle cells. Remarkably, cumulative evidence shows that a significant proportion of activated fibroblasts, adipocytes, and bone-cartilage cells, found after muscle trauma and disease, descend from these enigmatic interstitial progenitors. Despite the profound impact of muscle disease on human health, the fibrous, fatty, and ectopic bone tissues’ origins are poorly understood. Here, we review the current knowledge of fibro-adipogenic progenitor function on muscle homeostatic integrity, regeneration, repair, and aging. We also discuss how scar-forming pathologies and disorders lead to dysregulations in their behavior and plasticity and how these stromal cells can control the onset and severity of muscle loss in disease. We finally explore the rationale of improving muscle regeneration by understanding and modulating fibro-adipogenic progenitors’ fate and behavior.