Nuclear localization of HIPPO-YAP fusion proteins has been implicated in supratentorial ependymoma development. Here, unexpectedly, we find that liquid–liquid phase separation, rather than nuclear localization, of recurrent patient-derived YAP fusions, YAP-MAMLD1 and C11ORF95-YAP, underlies ependymoma tumourigenesis from neural progenitor cells. Mutagenesis and chimaera assays demonstrate that an intrinsically disordered region promotes oligomerization of the YAP fusions into nuclear, puncta-like, membrane-less condensates. Oligomerization and nuclear condensates induced by YAP fusion with a coiled-coil domain of transcriptional activator GCN4 also promote ependymoma formation. YAP-MAMLD1 concentrates transcription factors and co-activators, including BRD4, MED1 and TEAD, in condensates while excluding transcriptional repressive PRC2, and induces long-range enhancer–promoter interactions that promote transcription and oncogenic programmes. Blocking condensate-mediated transcriptional co-activator activity inhibits tumourigenesis, indicating a critical role of liquid phase separation for YAP fusion oncogenic activity in ependymoma. YAP fusions containing the intrinsically disordered region features are common in human tumours, suggesting that nuclear condensates could be targeted to treat YAP-fusion-induced cancers.