  We present a Chandra observation of the powerful radio galaxy 3C294 showing
clear evidence for a surrounding intracluster medium. At a redshift of 1.786
this is the most distant cluster of galaxies yet detected in X-rays. The radio
core is detected as a point source, which has a spectrum consistent with a
heavily-absorbed power law implying an intrinsic 2-10 keV luminosity of ~10^45
erg/s. A small excess of emission is associated with the southern radio
hotspots. The soft, diffuse emission from the intracluster medium is centred on
the radio source. It has an hour-glass shape in the N-S direction, extending to
radii of at least 100 kpc, well beyond the radio source. The X-ray spectrum of
this extended component is fit by a thermal model with temperature ~5 keV, or
by gas cooling from above 7 keV at rates of ~400-700 Msolar/yr. The rest-frame
0.3-10 keV luminosity of the cluster is ~4.5x10^44 erg/s. The existence of such
a cluster is consistent with a low density universe.
