Modifications of histone proteins have essential roles in normal development and human disease. Recognition of modified histones by 'reader' proteins is a key mechanism that mediates the function of histone modifications, but how the dysregulation of these readers might contribute to disease remains poorly understood. We previously identified the ENL protein as a reader of histone acetylation via its YEATS domain, linking it to the expression of cancer-driving genes in acute leukaemia. Recurrent hotspot mutations have been found in the ENL YEATS domain in Wilms tumour, the most common type of paediatric kidney cancer. Here we show, using human and mouse cells, that these mutations impair cell-fate regulation by conferring gain-of-function in chromatin recruitment and transcriptional control. ENL mutants induce gene-expression changes that favour a premalignant cell fate, and, in an assay for nephrogenesis using murine cells, result in undifferentiated structures resembling those observed in human Wilms tumour. Mechanistically, although bound to largely similar genomic loci as the wild-type protein, ENL mutants exhibit increased occupancy at a subset of targets, leading to a marked increase in the recruitment and activity of transcription elongation machinery that enforces active transcription from target loci. Furthermore, ectopically expressed ENL mutants exhibit greater self-association and form discrete and dynamic nuclear puncta that are characteristic of biomolecular hubs consisting of local high concentrations of regulatory factors. Such mutation-driven ENL self-association is functionally linked to enhanced chromatin occupancy and gene activation. Collectively, our findings show that hotspot mutations in a chromatin-reader domain drive self-reinforced recruitment, derailing normal cell-fate control during development and leading to an oncogenic outcome.