More commonly, it is learned by using a [Security DELTA Data Access Card] on a "D" Punchomatic card reader in Gnomeregan. This walkthrough describes how to get it. You must have Engineering skill of at least 160 to access the schematic this way.
As a Quest Reward
It is also possible to get this item from the dungeon set upgrade quest line: The Ectoplasmic Distiller. Note that this is the *item*, not the schematic.
Additional Details
Instant cast, 1 min cooldown. Not entirely sure about range but at least 15-20 yards. Directly dragging it to your hotbar and using it from there DOES work.
This item used to be fairly overpowering in PVP, especially for something this easy to make. It slows the movement speed of the target by 20% and reduces their melee/spell damage by 40. The big killer was that it would even dismount mounted opponents. Not to mention the humiliation and surprise of being transformed into an ugly leper gnome. Blizzard has removed this item's ability to dismount targets, citing that it was never intended to be able to dismount players flying in Outland.
It has no player level requirement nor does it have an Engineering level requirement either (very surprised), so literally anybody can use it. It IS possible to be resisted, yet I have only seen this happen when used on a person nine levels higher than the user.
If you are on the Horde side and you manage to get the schematic, you can make quite a fortune by selling it to higher level players.
Patch changes
Patch 1.6.0 (12-Jul-2005): The Discombobulator Ray's effect has been changed: it now reduces movement speed to 80% of normal and reduces the target's damage with both spells and melee by 40. The range is now 20 yards.