We present long-slit optical spectra of the z approximate to 1 radio galaxy 3C 356, which are used to suggest a new explanation of its highly peculiar properties. We find that the ultrahigh ionization narrow lines in component 'a', a similar to 10(7) M(circle dot) cloud similar to 20 h(-1) kpc from the nucleus, can be explained via photoionization by similar to 10(7) K gas generated in shocks driven into the cloud by an interaction with the radio-source jet. The presence of a 4000-Angstrom break in the spectrum of the continuum light from 'a' argues that red supergiant stars are also present in the cloud, implying that we are seeing the second episode of radio-source-cloud interaction, the first of which, coinciding with the birth of the radio source, was responsible for the star formation. A second cloud, 'd', is seen 32 h(-1) kpc from the nucleus, on the other side from 'a' and accurately aligned along the axis joining 'a' to the nucleus, suggesting that both clouds are interacting with precessing antiparallel jets for the second time. Our model also explains the X-ray emission from the 3C 356 system, the high speeds of clouds 'a' and 'd' with respect to the nucleus, and the low carbon abundance in 'a'. The implications of this model are that jet-induced star formation can lead to aligned near-infrared light within radio-source lifetimes as low as similar to 10(7) yr, and that shocks induced by the radio jets can produce X-rays which photoionize off-nuclear gas.