Skeletal muscle connective tissue (MCT) surrounds myofiber bundles to provide structural support, produce force transduction from tendons, and regulate satellite cell differentiation during muscle regeneration. Engineered muscle tissue composed of myofibers layered within MCT has not yet been developed. Herein, a bioengineering strategy to create MCT‐layered myofibers through the development of stem cell fate‐controlling biomaterials that achieve both myogenesis and fibroblast differentiation in a locally controlled manner at the single construct is introduced. The reciprocal role of transforming growth factor‐beta 1 (TGF‐β1) and its inhibitor as well as 3D matrix stiffness to achieve co‐differentiation of MCT fibroblasts and myofibers from a human‐induced pluripotent stem cell (hiPSC)‐derived paraxial mesoderm is studied. To avoid myogenic inhibition, TGF‐β1 is conjugated on the gelatin‐based hydrogel to control the fibroblasts’ populations locally; the TGF‐β1 degrades after 2 weeks, resulting in increased MCT‐specific extracellular matrix (ECM) production. The locations of myofibers and fibroblasts are precisely controlled by using photolithography and co‐axial wet spinning techniques, which results in the formation of MCT‐layered functional myofibers in 3D constructs. This advanced engineering strategy is envisioned as a possible method for obtaining biomimetic human muscle grafts for various biomedical applications.