Background The capacity of muscle to grow or to regenerate after damage is provided by adult stem cells, so called satellite cells, which are located under the basement lamina of each myofiber. Upon activation satellite cells enter the cell cycle, proliferate and differentiate into myoblasts, which fuse to injured myofibers or form new fibers. These processes are tightly controlled by many growth factors. Results Here we investigate the role of bone morphogenetic proteins (BMPs) during satellite cell differentiation. Unlike the myogenic C2C12 cell line, primary satellite cells do not differentiate into osteoblasts upon BMP signaling. Instead BMP signaling inhibits myogenic differentiation of primary satellite cells ex vivo. In contrast, inhibition of BMP signaling results in cell cycle exit, followed by enhanced myoblast differentiation and myotube formation. Using an in vivo trauma model we demonstrate that satellite cells respond to BMP signals during the regeneration process. Interestingly, we found the BMP inhibitor Chordin upregulated in primary satellite cell cultures and in regenerating muscles. In both systems Chordin expression follows that of Myogenin, a marker for cells committed to differentiation. Conclusion Our data indicate that BMP signaling plays a critical role in balancing proliferation and differentiation of activated satellite cells and their descendants. Initially, BMP signals maintain satellite cells descendants in a proliferating state thereby expanding cell numbers. After cells are committed to differentiate they upregulate the expression of the BMP inhibitor Chordin thereby supporting terminal differentiation and myotube formation in a negative feedback mechanism.