Using a femtosecond Ti:Sapphire laser, micro-tracks of material damage were written into Yb:YAG crystals. Waveguiding was achieved in a channel between pairs of tracks with guiding losses of 1.3 dB/cm at a wavelength of 1063 nm, due to a stress induced change of the refractive index. Pumped at a wavelength of 941 nm, highly efficient laser oscillation in a Yb:YAG channel waveguide at a wavelength of 1030 nm was demonstrated. An output power of 0.8 W at 1.2 W of launched pump power was achieved, resulting in a record slope efficiency of 75%.