How regeneration cues are converted into the epigenetic information that controls gene expression in adult stem cells is currently unknown. We identified an inflammation-activated signaling in muscle stem (satellite) cells, by which the polycomb repressive complex 2 (PRC2) represses Pax7 expression during muscle regeneration. TNF-activated p38α kinase promotes the interaction between YY1 and PRC2, via threonine 372 phosphorylation of EZH2, the enzymatic subunit of the complex, leading to the formation of repressive chromatin on Pax7 promoter. TNF-α antibodies stimulate satellite cell proliferation in regenerating muscles of dystrophic or normal mice. Genetic knockdown or pharmacological inhibition of the enzymatic components of the p38/PRC2 signaling - p38α and EZH2 - invariably promote Pax7 expression and expansion of satellite cells that retain their differentiation potential upon signaling resumption. Genetic knockdown of Pax7 impaired satellite cell proliferation in response to p38 inhibition, thereby establishing the biological link between p38/PRC2 signaling to Pax7 and satellite cell decision to proliferate or differentiate. © 2010 Elsevier Inc.