Skeletal muscle represents a convenient source of stem cells for cell-based tissue and genetic engineering. Muscle-derived stem cells (MDSCs) exhibit both multipotentiality and self-renewal capabilities, and are considered to be distinct from the well-studied satellite cell, another type of muscle stem cell that is capable of self-renewal and myogenic lineage differentiation. The MDSC appears to have less restricted differentiation capabilities as compared with the satellite cell, and may be a precursor of the satellite cell. This review considers the evidence for the existence of MDSCs as well as their origin. We will discuss recent investigations highlighting the potential of stem cell transplantation for the treatment of skeletal, cardiac and smooth muscle injuries and disease. We will highlight challenges in bridging the gap between understanding basic stem cell biology and clinical utilization for cell therapy.