Peripheral nerve injury denervates muscle, resulting in muscle paralysis and atrophy. This is reversible if timely muscle reinnervation occurs. With delayed reinnervation, the muscle's reparative ability declines, and muscle-resident fibro-adipogenic progenitor cells (FAPs) proliferate and differentiate, inducing fibro-fatty muscle degradation and thereby physical disability. The mechanisms by which the peripheral nerve regulates FAPs expansion and differentiation are incompletely understood. Using the rat tibial neve transection model, we demonstrated an increased FAPs content and a changing FAPs phenotype, with an increased capacity for adipocyte and fibroblast differentiation, in gastrocnemius muscle post-denervation. The FAPs response was inhibited by immediate tibial nerve repair with muscle reinnervation via neuromuscular junctions (NMJs) and sensory organs (e.g., muscle spindles) or the sensory protection of muscle (where a pure sensory nerve is sutured to the distal tibial nerve stump) with reinnervation by muscle spindles alone. We found that both procedures reduced denervation-mediated increases in glial-cell-line-derived neurotrophic factor (GDNF) in muscle and that GDNF promoted FAPs adipogenic and fibrogenic differentiation in vitro. These results suggest that the peripheral nerve controls FAPs recruitment and differentiation via the modulation of muscle GDNF expression through NMJs and muscle spindles. GDNF can serve as a therapeutic target in the management of denervation-induced muscle injury.