R habdomyosarcoma (RMS) is a malignancy of muscle myoblasts, which fail to exit the cell cycle, resist terminal differentiation, and are blocked from fusing into syncytial skeletal muscle. In some patients, RMS is caused by a translocation that generates the fusion oncoprotein PAX-FOXO1, but the underlying RMS pathogenetic mechanisms that impede differentiation and promote neoplastic transformation remain unclear. Using a Drosophila model of PAX-FOXO1–mediated transformation, we show here that mutation in the myoblast fusion gene rolling pebbles (rols) dominantly suppresses PAX-FOXO1 lethality. Further analysis indicated that PAX-FOXO1 expression caused upregulation of rols, which suggests that Rols acts downstream of PAX-FOXO1. In mammalian myoblasts, gene silencing of Tanc1, an ortholog of rols, revealed that it is essential for myoblast fusion, but is dispensable for terminal differentiation. Misexpression of PAX-FOXO1 in myoblasts upregulated Tanc1 and blocked differentiation, whereas subsequent reduction of Tanc1 expression to native levels by RNAi restored both fusion and differentiation. Furthermore, decreasing human TANC1 gene expression caused RMS cancer cells to lose their neoplastic state, undergo fusion, and form differentiated syncytial muscle. Taken together, these findings identify misregulated myoblast fusion caused by ectopic TANC1 expression as a RMS neoplasia mechanism and suggest fusion molecules as candidates for targeted RMS therapy.