During mouse embryo development, both muscle progenitor cells (MPCs) and brown adipocytes (BAs) are known to derive from the same Pax7+/Myf5+ progenitor cells. However, the underlying mechanisms for the cell fate control remain unclear. In Pax7-null MPCs from young mice, several BA-specific genes, including Prdm16 and Ucp1 and many other adipocyte-related genes, were upregulated with a concomitant reduction of Myod and Myf5, two muscle lineage-determining genes. This suggests a cell fate switch from MPC to BA. Consistently, freshly isolated Pax7-null but not wild-type MPCs formed lipid-droplet-containing UCP1+ BA in culture. Mechanistically, MyoD and Myf5, both known transcription targets of Pax7 in MPC, potently repress Prdm16, a BA-specific lineage-determining gene, via the E2F4/p107/p130 transcription repressor complex. Importantly, inducible Pax7 ablation in developing mouse embryos promoted brown fat development. Thus, the MyoD/Myf5-E2F4/p107/p130 axis functions in both the Pax7+/Myf5+ embryonic progenitor cells and postnatal myoblasts to repress the alternative BA fate.