Muscle stretch proprioceptors (muscle spindles) are required for stretch reflexes and locomotor control. Proprioception abnormalities are observed in many human neuropathies, but the mechanisms involved in establishing and maintaining muscle spindle innervation and function are still poorly understood. During skeletal muscle development, sensory (Ia-afferent) innervation induces contacted myotubes to transform into intrafusal muscle fibers that form the stretch receptor core. The transcriptional regulator Egr3 is induced in Ia-afferent contacted myotubes by Neuregulin1 (Nrg1)/ErbB receptor signaling and it has an essential role in spindle morphogenesis and function. Because Egr3 is widely expressed during development and has a pleiotropic function, whether Egr3 functions primarily in skeletal muscle, Ia-afferent neurons, or in Schwann cells that myelinate Ia-afferent axons remains unresolved. In the present studies, cell-specific ablation of Egr3 in mice showed that it has a skeletal muscle autonomous function in stretch receptor development. Moreover, using genetic tracing, we found that Ia-afferent contacted Egr3-deficient myotubes were induced in normal numbers, but their development was blocked to generate one to two shortened fibers that failed to express some characteristic myosin heavy chain (MyHC) proteins. These "spindle remnants" persisted into adulthood, remained innervated by Ia-afferents, and expressed neurotrophin3 (NT3), which is required for Ia-afferent neuron survival. However, they were not innervated by fusimotor axons and they did not express glial derived neurotrophic factor (GDNF), which is essential for fusimotor neuron survival. These results demonstrate that Egr3 has an essential role in regulating gene expression that promotes normal intrafusal muscle fiber differentiation and fusimotor innervation homeostasis.