Several pathologies of adult skeletal muscle are associated with increased intramuscular adipose tissue, but the cellular source of the adipocytes is disputed. In order to establish which cell types from human skeletal muscle might be responsible we undertook experiments in vitro on cells extracted from muscle biopsy samples. These were obtained (following local anesthesia, 2% Lignocaine), from the vastus lateralis of healthy male volunteers aged (25.6±3.5 years). We first optimised an immuno-magnetic method to separate human myogenic stem cells from non-myogenic cells (predominantly fibroblasts). This gave initial purities of 96.9±1.4 and 90.5±3.12 (mean ±SD, n=5 biopsies) for myogenic (CD56+ve/desmin+ve) and fibroblast (CD56-ve/TE-7+ve) populations respectively. We then tested if the purified cell populations could transdifferentiate into adipocytes in response to treatment with fatty acids (600μM palmitic and oleic acid) or Adipocyte Inducing Medium. This experimental approach was combined with quantitative analysis of Oil-Red O staining for lipid acummulation and immunostaining for lineage markers and transcription factors. Both treatments caused the fibroblasts to transdifferentiate into adipocytes, as evidenced by loss of the intracellular connective tissue protein TE-7 (from 94.6±3.6% to 5.0±2.% of cells, P<0.001), significant upregulation of the adipogenic transcription factors PPARγ and C/EBPα (P<0.001), and adoption of the typical Oil-Red O+ve lipid-laden adipocyte morphology. Lipid content per cell (Oil-Red O+ve area μm2) was significantly greater (P<0.001) in fibroblasts compared to muscle cells both before (muscle cells 13.1±5.5 vs. fibroblasts 80.0±17.6) and after fatty acid treatment (muscle cells 149.5±75.9 vs. fibroblasts 556.0±224.0). Muscle cells did not transdifferentiate under any condition, but significantly upregulated PPARγ and C/EBPα in response to fatty acids (P<0.001). Contrastingly, PPARγ and C/EBPα were slightly, but significantly decreased (P<0.001) in muscle cells cultured in AIM medium, revealing differences in the regulation of these transcription factors between myogenic cells and fibroblasts. After 15 days of AIM treatment muscle cells, all of which were incapable of adipogenesis, contained on average ~500 fold less lipid per cell than the fibroblasts which had transdifferentiated into adipocytes. These data suggest that skeletal muscle fibroblasts and not myogenic cells, are the major cellular source of intramuscular adipose tissue. Our findings have clear implications for therapeutic approaches aimed at regulating adipogenesis in skeletal muscle.