Fusion genes are a major cause of cancer. Their rapid and accurate diagnosis can inform clinical action, but current molecular diagnostic assays are restricted in resolution and throughput. Here, we show that targeted RNA sequencing (RNAseq) can overcome these limitations. First, we establish that fusion gene detection with targeted RNAseq is both sensitive and quantitative by optimising laboratory and bioinformatic variables using spike-in standards and cell lines. Next, we analyse a clinical patient cohort and improve the overall fusion gene diagnostic rate from 63% with conventional approaches to 76% with targeted RNAseq while demonstrating high concordance for patient samples with previous diagnoses. Finally, we show that targeted RNAseq offers additional advantages by simultaneously measuring gene expression levels and profiling the immune-receptor repertoire. We anticipate that targeted RNAseq will improve clinical fusion gene detection, and its increasing use will provide a deeper understanding of fusion gene biology.