Inside the finger-like intestinal projections called villi, strands of smooth muscle cells contract to propel absorbed dietary fats through the adjacent lymphatic capillary, the lacteal, sending fats into the systemic blood circulation for energy production. Despite this vital function, mechanisms of formation, assembly alongside lacteals, and maintenance of villus smooth muscle are unknown. By combining single-cell RNA sequencing and quantitative lineage tracing of the mouse intestine, we identified a local hierarchy of subepithelial fibroblast progenitors that differentiate into mature smooth muscle fibers via intermediate contractile myofibroblasts. This continuum persists as the major mechanism for villus musculature renewal throughout adult life. The NOTCH3-DLL4 signaling axis governs the assembly of smooth muscle fibers alongside their adjacent lacteals and is required for fat absorption. Our studies identify the ontogeny and maintenance of a poorly defined class of intestinal smooth muscle, with implications for accelerated repair and recovery of digestive function following injury.