Tendon injuries cause prolonged disability and never recover completely. Current mechanistic understanding of tendon regeneration is limited. Here, we use single-cell transcriptomics to identify a tubulin polymerization-promoting protein family member 3-expressing (Tppp3+) cell population as potential tendon stem cells. Through inducible lineage tracing, we demonstrate that these cells can generate new tenocytes and self-renew upon injury. A fraction of Tppp3+ cells expresses platelet-derived growth factor receptor alpha (Pdfgra). Ectopic platelet-derived growth factor-AA (PDGF-AA) protein induces new tenocyte production while inactivation of Pdgfra in Tppp3+ cells blocks tendon regeneration. These results support Tppp3+Pdgfra+ cells as tendon stem cells. Unexpectedly, Tppp3-Pdgfra+ fibro-adipogenic progenitors coexist in the tendon stem cell niche and give rise to fibrotic cells, revealing a clandestine origin of fibrotic scars in healing tendons. Our results explain why fibrosis occurs in injured tendons and present clinical challenges to enhance tendon regeneration without a concurrent increase in fibrosis by PDGF application.