Mammalian MBNL (muscleblind-like) proteins are regulators of alternative splicing and have been implicated in myotonic dystrophy, the most common form of adult onset muscular dystrophy. MBNL3 functions as an inhibitor of muscle differentiation and is expressed in proliferating muscle precursor cells but not in differentiated skeletal muscle. Here we demonstrate that MBNL3 regulates the splicing pattern of the muscle transcription factor myocyte enhancer factor 2 (Mef2) by promoting exclusion of the alternatively spliced β-exon. Expression of the transcriptionally more active (+)β isoform of Mef2D was sufficient to overcome the inhibitory effects of MBNL3 on muscle differentiation. These data suggest that MBNL3 antagonizes muscle differentiation by disrupting Mef2 β-exon splicing. MBNL3 regulates Mef2D splicing by directly binding to intron 7 downstream of the alternatively spliced exon in the pre-mRNA. The RNA binding activity of MBNL3 requires the CX(7)CX(4-6)CX(3)H zinc finger domains. Using a cell culture model of myotonic dystrophy and myotonic dystrophy patient tissue, we have evidence that expression of CUG expanded RNAs can lead to an increase in MBNL3 expression and a decrease in Mef2D β-exon splicing. These studies suggest that elevating MBNL3 activity in myogenic cells could lead to muscle degeneration disorders such as myotonic dystrophy.