Fate decisions in the embryo are controlled by a plethora of microenvironmental interactions in a three-dimensional niche. To investigate whether aspects of this microenvironmental complexity can be engineered to direct myogenic human-induced pluripotent stem cell (hiPSC) differentiation, we here screened murine cell types present in the developmental or adult stem cell niche in heterotypic suspension embryoids. We identified embryonic endothelial cells and fibroblasts as highly permissive for myogenic specification of hiPSCs. After two weeks of sequential Wnt and FGF pathway induction, these three-component embryoids are enriched in Pax7-positive embryonic-like myogenic progenitors that can be isolated by flow cytometry. Myogenic differentiation of hiPSCs in heterotypic embryoids relies on a specialized structural microenvironment and depends on MAPK, PI3K/AKT, and Notch signaling. After transplantation in a mouse model of Duchenne muscular dystrophy, embryonic-like myogenic progenitors repopulate the stem cell niche, reactivate after repeated injury, and, compared to adult human myoblasts, display enhanced fusion and lead to increased muscle function. Altogether, we provide a two-week protocol for efficient and scalable suspension-based 3D derivation of Pax7-positive myogenic progenitors from hiPSCs.