Tumor-propagating cells (TPCs) share self-renewal properties with normal stem cells and drive continued tumor growth. However, mechanisms regulating TPC self-renewal are largely unknown, especially in embryonal rhabdomyosarcoma (ERMS)—a common pediatric cancer of muscle. Here, we used a zebrafish transgenic model of ERMS to identify a role for intracellular NOTCH1 (ICN1) in increasing TPCs by 23-fold. ICN1 expanded TPCs by enabling the de-differentiation of zebrafish ERMS cells into self-renewing myf5+ TPCs, breaking the rigid differentiation hierarchies reported in normal muscle. ICN1 also had conserved roles in regulating human ERMS self-renewal and growth. Mechanistically, ICN1 upregulated expression of SNAIL1, a transcriptional repressor, to increase TPC number in human ERMS and to block muscle differentiation through suppressing MEF2C, a myogenic differentiation transcription factor. Our data implicate the NOTCH1/SNAI1/MEF2C signaling axis as a major determinant of TPC self-renewal and differentiation in ERMS, raising hope of therapeutically targeting this pathway in the future.