Genomic rearrangements are a hallmark of childhood solid tumors, but their mutational causes remain poorly understood. Here, we identify the piggyBac transposable element derived 5 (PGBD5) gene as an enzymatically active human DNA transposase expressed in the majority of rhabdoid tumors, a lethal childhood cancer. Using assembly-based whole-genome DNA sequencing, we observed previously unknown somatic genomic rearrangements in primary human rhabdoid tumors. These rearrangements were characterized by deletions and inversions involving PGBD5-specific signal (PSS) sequences at their breakpoints, with some recurrently targeting tumor suppressor genes, leading to their inactivation. PGBD5 was found to be physically associated with human genomic PSS sequences that were also sufficient to mediate PGBD5-induced DNA rearrangements in rhabdoid tumor cells. We found that ectopic expression of PGBD5 in primary immortalized human cells was sufficient to promote penetrant cell transformation in vitro and in immunodeficient mice in vivo. This activity required specific catalytic residues in the PGBD5 transposase domain, as well as end-joining DNA repair, and induced distinct structural rearrangements, involving PSS-associated breakpoints, similar to those found in primary human rhabdoid tumors. This defines PGBD5 as an oncogenic mutator and provides a plausible mechanism for site-specific DNA rearrangements in childhood and adult solid tumors.