Linking clinical multi-omics with mechanistic studies may improve the understanding of rare cancers. We leverage two precision oncology programs to investigate rhabdomyosarcoma with FUS/EWSR1-TFCP2 fusions, an orphan malignancy without effective therapies. All tumors exhibit outlier ALK expression, partly accompanied by intragenic deletions and aberrant splicing resulting in ALK variants that are oncogenic and sensitive to ALK inhibitors. Additionally, recurrent CKDN2A/MTAP co-deletions provide a rationale for PRMT5-targeted therapies. Functional studies show that FUS-TFCP2 blocks myogenic differentiation, induces transcription of ALK and truncated TERT, and inhibits DNA repair. Unlike other fusion-driven sarcomas, TFCP2-rearranged tumors exhibit genomic instability and signs of defective homologous recombination. DNA methylation profiling demonstrates a close relationship with undifferentiated sarcomas. In two patients, sarcoma was preceded by benign lesions carrying FUS-TFCP2, indicating stepwise sarcomagenesis. This study illustrates the potential of linking precision oncology with preclinical research to gain insight into the classification, pathogenesis, and therapeutic vulnerabilities of rare cancers.