The role of the Hippo pathway effector YAP1 in soft tissue sarcomas is poorly defined. Here we report that YAP1 activity is elevated in human embryonal rhabdomyosarcoma (ERMS). In mice, sustained YAP1 hyperactivity in activated, but not quiescent, satellite cells induces ERMS with high penetrance and short latency. Via its transcriptional program with TEAD1, YAP1 directly regulates several major hallmarks of ERMS. YAP1-TEAD1 upregulate pro-proliferative and oncogenic genes and maintain the ERMS differentiation block by interfering with MYOD1 and MEF2 pro-differentiation activities. Normalization of YAP1 expression reduces tumor burden in human ERMS xenografts and allows YAP1-driven ERMS to differentiate in situ. Collectively, our results identify YAP1 as a potent ERMS oncogenic driver and a promising target for differentiation therapy.