The Hippo effector YAP has recently been identified as a potent driver of embryonal rhabdomyosarcoma (ERMS). Most reports suggest that the YAP paralogue TAZ (gene symbol WWTR1) functions as YAP but, in skeletal muscle, TAZ has been reported to promote myogenic differentiation, whereas YAP inhibits it. Here, we investigated whether TAZ is also a rhabdomyosarcoma oncogene or whether TAZ acts as a YAP antagonist. Immunostaining of rhabdomyosarcoma tissue microarrays revealed that TAZ is significantly associated with poor survival in ERMS. In 12% of fusion gene‐negative rhabdomyosarcomas, the TAZ locus is gained, which is correlated with increased expression. Constitutively active TAZ S89A significantly increased proliferation of C2C12 myoblasts and, importantly, colony formation on soft agar, suggesting transformation. However, TAZ then switches to enhance myogenic differentiation in C2C12 myoblasts, unlike YAP. Conversely, lentiviral shRNA‐mediated TAZ knockdown in human ERMS cells reduced proliferation and anchorage‐independent growth. While TAZ S89A or YAP1 S127A similarly activated the 8XGTIIC–Luc Hippo reporter, only YAP1 S127A activated the Brachyury (T‐box) reporter. Consistent with its oncogene function, TAZ S89A induced expression of the ERMS cancer stem cell gene Myf5 and the serine biosynthesis pathway (Phgdh, Psat1, Psph) in C2C12 myoblasts. Thus, TAZ is associated with poor survival in ERMS and could act as an oncogene in rhabdomyosarcoma. © 2016 The Authors. The Journal of Pathology published by John Wiley & Sons Ltd on behalf of Pathological Society of Great Britain and Ireland.