Aneurysmal bone cyst (ABC) is a locally aggressive osseous lesion that typically occurs during the first two decades of life. ABC was regarded historically as a nonneoplastic process, but recent cytogenetic data have shown clonal rearrangements of chromosomal bands 16q22 and 17p13, indicating a neoplastic basis in at least some ABCs. Herein we show that a recurring ABC chromosomal translocation t(16;17)(q22;p13) creates a fusion gene in which the osteoblast cadherin 11 gene (CDH11) promoter region on 16q22 is juxtaposed to the entire ubiquitin-specific protease USP6 (Tre2) coding sequence on 17p13. CDH11-USP6 fusion transcripts were demonstrated only in ABC with t(16;17) but other ABCs had CDH11 or USP6 rearrangements resulting from alternate cytogenetic mechanisms. CDH11 is expressed strongly in bone, and our findings implicate a novel oncogenic mechanism in which deregulated USP6 transcription results from juxtaposition to the highly active CDH11 promoter.