A method for on-demand droplet fusion in a microfluidic channel is presented using the flow created from a single explosively expanding cavitation bubble. We test the technique for water-in-oil droplets, which are produced using a T-junction design in a microfluidic chip. The cavitation bubble is created with a pulsed laser beam focused into one droplet. High-speed photography of the dynamics reveals that the droplet fusion can be induced within a few tens of microseconds and is caused by the rapid thinning of the continuous phase film separating the droplets. The cavitation bubble collapses and re-condenses into the droplet. Droplet fusion is demonstrated for static and moving droplets, and for droplets of equal and unequal sizes. Furthermore, we reveal the diffusion dominated mixing flow and the transport of a single encapsulated cell into a fused droplet. This laser-based droplet fusion technique may find applications in micro-droplet based chemical synthesis and bioassays.