Skeletal muscle expressing Pro104Leu mutant caveolin 3 (CAV3(P104L)) in mouse becomes atrophied and serves as a model of autosomal dominant limb-girdle muscular dystrophy 1C. We previously found that caveolin 3-deficient muscles showed activated intramuscular transforming growth factor beta (TGF-β) signals. However, the cellular mechanism by which loss of caveolin 3 leads to muscle atrophy is unknown. Recently, several small-molecule inhibitors of TGF-β type I receptor (TβRI) kinase have been developed as molecular-targeting drugs for cancer therapy by suppressing intracellular TGF-β1, -β2, and -β3 signaling. Here, we show that a TβRI kinase inhibitor, Ki26894, restores impaired myoblast differentiation in vitro caused by activin, myostatin, and TGF-β1, as well as CAV3(P104L). Oral administration of Ki26894 increased muscle mass and strength in vivo in wild-type mice, and improved muscle atrophy and weakness in the CAV3(P104L) mice. The inhibitor restored the number of satellite cells, the resident stem cells of adult skeletal muscle, with suppression of the increased phosphorylation of Smad2, an effector, and the upregulation of p21 (also known as Cdkn1a), a target gene of the TGF-β family members in muscle. These data indicate that both TGF-β-dependent reduction in satellite cells and impairment of myoblast differentiation contribute to the cellular mechanism underlying caveolin 3-deficient muscle atrophy. TβRI kinase inhibitors could antagonize the activation of intramuscular anti-myogenic TGF-β signals, thereby providing a novel therapeutic rationale for the alternative use of this type of anticancer drug in reversing muscle atrophy in various clinical settings.