The formation of a spin glass generally requires that magnetic exchange interactions are both frustrated and disordered. Consequently, the origin of spin-glass behavior in Y2Mo2O7—in which magnetic Mo4þ ions occupy a frustrated pyrochlore lattice with minimal compositional disorder—has been a longstanding question. Here, we use neutron and x-ray pair-distribution function (PDF) analysis to develop a disorder model that resolves apparent incompatibilities between previously reported PDF, extended x-rayabsorption fine structure spectroscopy, and NMR studies, and provides a new and physical explanation of the exchange disorder responsible for spin-glass formation. We show that Mo4þ ions displace according to a local “two-in–two-out” rule on each Mo4 tetrahedron, driven by orbital dimerization of Jahn-Teller active Mo4þ ions. Long-range orbital order is prevented by the macroscopic degeneracy of dimer coverings permitted by the pyrochlore lattice. Cooperative O2− displacements yield a distribution of Mo–O–Mo angles, which in turn introduces disorder into magnetic interactions. Our study demonstrates experimentally how frustration of atomic displacements can assume the role of compositional disorder in driving a spin-glass transition.