Synovial sarcoma is an aggressive cancer invariably associated with a chromosomal translocation involving genes encoding the SWI-SNF complex component SS18 and an SSX (SSX1 or SSX2) transcriptional repressor. Using functional genomics, we identify KDM2B, a histone demethylase and component of a non-canonical polycomb repressive complex 1 (PRC1.1), as selectively required for sustaining synovial sarcoma cell transformation. SS18-SSX1 physically interacts with PRC1.1 and co-associates with SWI/SNF and KDM2B complexes on unmethylated CpG islands. Via KDM2B, SS18-SSX1 binds and aberrantly activates expression of developmentally regulated genes otherwise targets of polycomb-mediated repression, which is restored upon KDM2B depletion, leading to irreversible mesenchymal differentiation. Thus, SS18-SSX1 deregulates developmental programs to drive transformation by hijacking a transcriptional repressive complex to aberrantly activate gene expression.