Genome instability in cancer drives tumor heterogeneity, undermines the success of therapies, and leads to metastasis and recurrence. Condensins are conserved chromatin‐binding proteins that promote genomic stability, mainly by ensuring proper condensation of chromatin and mitotic chromosome segregation. Condensin mutations are found in human tumors, but it is not known how or even if such mutations promote cancer progression. In this study, we focus on condensin II subunit CAPH2 and specific CAPH2 mutations reported to be enriched in human cancer patients, and we test how CAPH2 cancer‐specific mutations may lead to condensin II complex dysfunction and contribute to genome instability. We find that R551P, R551S, and S556F mutations in CAPH2 cause genomic instability by causing DNA damage, anaphase defects, micronuclei, and chromosomal instability. DNA damage and anaphase defects are caused primarily by ataxia telangiectasia and Rad3‐related‐dependent telomere dysfunction, as anaphase bridges are enriched for telomeric repeat sequences. We also show that these mutations decrease the binding of CAPH2 to the ATPase subunit SMC4 as well as the rest of the condensin II complex, and decrease the amount of CAPH2 protein bound to chromatin. Thus, in vivo the R551P, R551S, and S556F cancer‐specific CAPH2 mutant proteins are likely to impair condensin II complex formation, impede condensin II activity during mitosis and interphase, and promote genetic heterogeneity in cell populations that can lead to clonal outgrowth of cancer cells with highly diverse genotypes.