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Structural maintenance of chromosome (SMC) protein complexes are able to extrude DNA loops. While loop extrusion constitutes a fundamental building block of chromosomes, other factors may be equally important. Here, we show that yeast cohesin exhibits pronounced clustering on DNA, with all the hallmarks of biomolecular condensation. DNA-cohesin clusters exhibit liquid-like behavior, showing fusion of clusters, rapid fluorescence recovery after photobleaching and exchange of cohesin with the environment. Strikingly, the in vitro clustering is DNA length dependent, as cohesin forms clusters only on DNA exceeding 3 kilo–base pairs. We discuss how bridging-induced phase separation, a previously unobserved type of biological condensation, can explain the DNA-cohesin clustering through DNA-cohesin-DNA bridges. We confirm that, in yeast cells in vivo, a fraction of cohesin associates with chromatin in a manner consistent with bridging-induced phase separation. Biomolecular condensation by SMC proteins constitutes a new basic principle by which SMC complexes direct genome organization.