We report on the discovery and observations of the extremely luminous optical transient CSS100217:102913+404220 (CSS100217 hereafter). Spectroscopic observations show this transient was coincident with a galaxy at redshift z=0.147, and reached an apparent magnitude of V ~ 16.3. After correcting for foreground Galactic extinction we determine the absolute magnitude to be M_V =-22.7 approximately 45 days after maximum light. Based on our unfiltered optical photometry the peak optical emission was L = 1.3 x 10^45 erg s^-1, and over a period of 287 rest-frame days had an integrated bolometric luminosity of 1.2 x 10^52 erg. Analysis of the pre-outburst SDSS spectrum of the source shows features consistent with a Narrow-line Seyfert1 (NLS1) galaxy. High-resolution HST and Keck followup observations show the event occurred within 150pc of nucleus of the galaxy, suggesting a possible link to the active nuclear region. However, the rapid outburst along with photometric and spectroscopic evolution are much more consistent with a luminous supernova. Line diagnostics suggest that the host galaxy is undergoing significant star formation. We use extensive follow-up of the event along with archival CSS and SDSS data to investigate the three most likely sources of such an event; 1) an extremely luminous supernova; 2) the tidal disruption of a star by the massive nuclear black hole; 3) variability of the central AGN. We find that CSS100217 was likely an extremely luminous type IIn supernova that occurred within range of the narrow-line region of an AGN. We discuss how similar events may have been missed in past supernova surveys because of confusion with AGN activity.