Updated project metadata. Smooth muscle is an essential component of the intestine, both to maintain its structure and produce peristaltic and segmentation movements. However, very little is known about other putative roles that smooth muscle may have. Here, we show that smooth muscle is the dominant supplier of BMP antagonists, which are niche factors that are essential for intestinal stem cell maintenance. Furthermore, muscle-derived factors can render epithelium reparative and fetal-like, which includes heightened YAP activity. Mechanistically, we find that the matrix metalloproteinase MMP17, which is exclusively expressed by smooth muscle, is required for intestinal epithelial repair after inflammation- or irradiation-induced injury. Furthermore, we provide evidence that MMP17 affects intestinal epithelial reprogramming indirectly by cleaving the matricellular protein PERIOSTIN, which itself is able to activate YAP. Together, we identify an important signaling axis that firmly establishes a role for smooth muscle as a modulator of intestinal epithelial regeneration and the intestinal stem cell niche.