Recent exon sequencing studies have revealed that over 20% of human tumors have mutations in subunits of mSWI/SNF (BAF) complexes. To investigate the underlying mechanism, we studied human synovial sarcoma (SS), in which transformation results from the translocation of exactly 78 amino acids of SSX to the SS18 subunit of BAF complexes. We demonstrate that the SS18-SSX fusion protein competes for assembly with wild-type SS18, forming an altered complex lacking the tumor suppressor BAF47 (hSNF5). The altered complex binds the Sox2 locus and reverses polycomb-mediated repression, resulting in Sox2 activation. Sox2 is uniformly expressed in SS tumors and is essential for proliferation. Increasing the concentration of wild-type SS18 leads to reassembly of wild-type complexes retargeted away from the Sox2 locus, polycomb-mediated repression of Sox2, and cessation of proliferation. This mechanism of transformation depends on only two amino acids of SSX, providing a potential foundation for therapeutic intervention.