Myotonic dystrophy (DM) is caused by two similar noncoding repeat expansion mutations (DM1 and DM2). It is thought that both mutations produce pathogenic RNA molecules that accumulate in nuclear foci. The DM1 mutation is a CTG expansion in the 3' untranslated region (3'-UTR) of dystrophia myotonica protein kinase (DMPK). In a cell culture model, mutant transcripts containing a (CUG)200 DMPK 3'-UTR disrupt C2C12 myoblast differentiation; a phenotype similar to what is observed in myoblast cultures derived from DM1 patient muscle. Here, we have used our cell culture model to investigate how the mutant 3'-UTR RNA disrupts differentiation. We show that MyoD protein levels are compromised in cells that express mutant DMPK 3'-UTR transcripts. MyoD, a transcription factor required for the differentiation of myoblasts during muscle regeneration, activates differentiation-specific genes by binding E-boxes. MyoD levels are significantly reduced in myoblasts expressing the mutant 3'-UTR RNA within the first 6 h under differentiation conditions. This reduction correlates with blunted E-box-mediated gene expression at time points that are critical for initiating differentiation. Importantly, restoring MyoD levels rescues the differentiation defect. We conclude that mutant DMPK 3'-UTR transcripts disrupt myoblast differentiation by reducing MyoD levels below a threshold required to activate the differentiation program.