Background: Stem cell transplantation represents a potential therapeutic option for muscular dystrophies (MD). However, to date, most reports have utilized mouse models for recessive types of MD. Here we performed studies to determine whether myotonic dystrophy 1 (DM1), an autosomal dominant type of MD, could benefit from cell transplantation. Methods: We injected human pluripotent stem (PS) cell-derived myogenic progenitors into the muscles of a novel mouse model combining immunodeficiency and skeletal muscle pathology of DM1 and investigated transplanted mice for engraftment as well as for the presence of RNA foci and alternative splicing pattern. Findings: Engraftment was clearly observed in recipient mice, but unexpectedly, we detected RNA foci in donor-derived engrafted myonuclei. These foci proved to be pathogenic as we observed MBNL1 sequestration and abnormal alternative splicing in donor-derived transcripts. Interpretation: It has been assumed that toxic CUG repeat-containing RNA forms foci in situ in the nucleus in which it is expressed, but these data suggest that CUG repeat-containing RNA may also exit the nucleus and traffic to other nuclei in the syncytial myofiber, where it can exert pathological effects. Fund: This project was supported by funds from the LaBonte/Shawn family and NIH grants R01 AR055299 and AR071439 (R.C.R.P.). R.M-G. was funded by CONACyT-Mexico (#394378). Keywords: Autosomal dominant, Myotonic dystrophy 1, Induced pluripotent stem (iPS) cells, Cell therapy, HSALR, Muscular dystrophy, PAX7, RNA foci, Human-specific splicing