We report an algorithm to detect structural variation and indels from 1 base pair (bp) to 1 Mbp within exome sequence data sets. Splitread uses one end-anchored placements to cluster the mappings of subsequences of unanchored ends to identify the size, content and location of variants with high specificity and sensitivity. The algorithm discovers indels, structural variants, de novo events and copy number-polymorphic processed pseudogenes missed by other methods.