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 Y_{2}Mo_{2}O_{7}-in which magnetic Mo^{4+} 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-ray-absorption 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 Mo^{4+} ions displace according to a local "two-in-two-out" rule on each Mo_{4} tetrahedron, driven by orbital dimerization of Jahn-Teller active Mo^{4+} ions. Long-range orbital order is prevented by the macroscopic degeneracy of dimer coverings permitted by the pyrochlore lattice. Cooperative O^{2-} 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.