We present a Chandra observation of the powerful radio galaxy 3C 294 showin
g 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. Th
e 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 luminosi
ty of similar to 10(45) erg s(-1). A small excess of emission is associated
with the southern radio hotspots. The soft, diffuse emission from the intr
acluster medium is centred on the radio source. It has an hourglass shape i
n the north-south direction, extending to radii of at least 100 kpc, well b
eyond the radio source. The X-ray spectrum of this extended component is fi
tted by a thermal model with temperature similar to5 keV, or by gas cooling
from above 7 keV at rates of similar to 400-700 M-. yr(-1). The rest-frame
0.3-10 keV luminosity of the cluster is similar to4.5x10(44) erg s(-1). Th
e existence of such a cluster is consistent with a low-density universe.