Signaling through the IGF-I receptor by locally produced IGF-I or -II is critical for normal skeletal muscle development and repair after injury. In most tissues, IGF action is modulated by IGF binding proteins (IGFBPs). IGFBP-5 is produced by muscle cells, and previous studies have suggested that when over-expressed it may either facilitate or inhibit IGF actions, and thus potentially enhance or diminish IGF-mediated myoblast differentiation or survival. To resolve these contradictory observations and discern the mechanisms of action of IGFBP-5, we studied its effects in cultured muscle cells. Purified wild-type (WT) mouse IGFBP-5 or a variant with diminished extra-cellular matrix binding (C domain mutant) each prevented differentiation at final concentrations as low as 3.5 nM, while analogs with reduced IGF binding (N domain mutant) were ineffective even at 100 nM. None of the IGFBP-5 variants altered cell number. An IGF-I analog (R³IGF-I) with diminished affinity for IGFBPs promoted full muscle differentiation in the presence of IGFBP-5^WT, showing that IGFBP-5 interferes with IGF-dependent signaling pathways in myoblasts. When IGFBP-5^WT or variants were overexpressed by adenovirus-mediated gene transfer, concentrations in muscle culture medium reached 500 nM, and differentiation was inhibited, even by IGFBP-5^N. As 200 nM of purified IGFBP-5^N prevented activation of the IGF-I receptor by 10 nM IGF-II as effectively as 2 nM of IGFBP-5^WT, our results not only demonstrate that IGFBP-5 variants with reduced IGF binding affinity impair muscle differentiation by blocking IGF actions, but underscore the need for caution when labeling effects of IGFBPs as "IGF-independent", since even low-affinity analogues may potently inhibit IGF-I or -II if present at high enough concentrations in biological fluids.