Muscle satellite cells make up a stem cell population that is capable of differentiating into myocytes and contributing to muscle regeneration upon injury. In this work we investigate the mechanism by which these muscle progenitor cells adopt an alternative cell fate, the cartilage fate. We show that chick muscle satellite cells that normally would undergo myogenesis can be converted to express cartilage matrix proteins in vitro when cultured in chondrogenic medium containing TGFß3 or BMP2. In the meantime, the myogenic program is repressed, suggesting that muscle satellite cells have undergone chondrogenic differentiation. Furthermore, ectopic expression of the myogenic factor Pax3 prevents chondrogenesis in these cells, while chondrogenic factors Nkx3.2 and Sox9 act downstream of TGFß or BMP2 to promote this cell fate transition. We found that Nkx3.2 and Sox9 repress the activity of the Pax3 promoter and that Nkx3.2 acts as a transcriptional repressor in this process. Importantly, a reverse function mutant of Nkx3.2 blocks the ability of Sox9 to both inhibit myogenesis and induce chondrogenesis, suggesting that Nkx3.2 is required for Sox9 to promote chondrogenic differentiation in satellite cells. Finally, we found that in an in vivo mouse model of fracture healing where muscle progenitor cells were lineage-traced, Nkx3.2 and Sox9 are significantly upregulated while Pax3 is significantly downregulated in the muscle progenitor cells that give rise to chondrocytes during fracture repair. Thus our in vitro and in vivo analyses suggest that the balance of Pax3, Nkx3.2 and Sox9 may act as a molecular switch during the chondrogenic differentiation of muscle progenitor cells, which may be important for fracture healing.