Fat infiltration within muscle is one of a number of features of vitamin D deficiency, which leads to a decline in muscle functionality. The origin of this fat is unclear, but one possibility is that it forms from myogenic precursor cells present in the muscle, which transdifferentiate into mature adipocytes. The current study examined the effect of the active form of vitamin D3, 1,25-dihydroxyvitamin D3 (1,25(OH)2D3), on the capacity of the C2C12 muscle cell line to differentiate towards the myogenic and adipogenic lineages. Cells were cultured in myogenic or adipogenic differentiation media containing increasing concentrations (0, 10−13, 10−11, 10−9, 10−7 or 10−5 M) of 1,25(OH)2D3 for up to 6 days and markers of muscle and fat development measured. Mature myofibres were formed in both adipogenic and myogenic media, but fat droplets were only observed in adipogenic media. Relative to controls, low physiological concentrations (10−13 and 10−11 M) of 1,25(OH)2D3 increased fat droplet accumulation, whereas high physiological (10−9 M) and supraphysiological concentrations (≥10−7 M) inhibited fat accumulation. This increased accumulation of fat with low physiological concentrations (10−13 and 10−11 M) was associated with a sequential up-regulation of PPARγ2 (PPARG) and FABP4 mRNA, indicating formation of adipocytes, whereas higher concentrations (≥10−9 M) reduced all these effects, and the highest concentration (10−5 M) appeared to have toxic effects. This is the first study to demonstrate dose-dependent effects of 1,25(OH)2D3 on the transdifferentiation of muscle cells into adipose cells. Low physiological concentrations (possibly mimicking a deficient state) induced adipogenesis, whereas higher (physiological and supraphysiological) concentrations attenuated this effect.