The loss of epithelial homeostasis and the disruption of normal tissue morphology are hallmarks of tumor development. Here, we ask how the uniform activation oncogene RAS affects the morphology and tissue mechanics in a normal epithelium. We found that inducible induction of HRAS in confined epithelial monolayers on soft substrates drives a morphological transformation of a 2D monolayer into a compact 3D cell aggregate. This transformation was initiated by the loss of monolayer integrity and formation of two distinct cell layers with differential cell-cell junctions, cell-substrate adhesion, and tensional states. Computational modeling revealed how adhesion and active peripheral tension induces inherent mechanical instability in the system, which drives the 2D-to-3D morphological transformation. Consistent with this, removal of epithelial tension through the inhibition of actomyosin contractility halted the process. These findings reveal the mechanisms by which oncogene activation within an epithelium can induce mechanical instability to drive morphological tissue transformation.