Telomerase is the ribonucleoprotein complex that adds telomeric repeats to the ends of chromosomes. Its protein subunit TERT is highly conserved among eukaryotes, whereas the RNA subunit varies greatly in size and sequence, hindering the identification of telomerase RNAs in some important model organisms. Here we report the identification and functional characterization of TER1, the telomerase RNA component from fission yeast Schizosaccharomyces pombe. Deletion of ter1+ caused progressive shortening of telomeres and cellular senescence followed by chromosome circularization. Interactions between Est1 and Trt1, the two known protein components of fission yeast telomerase, were dependent on TER1, supporting its role as a scaffold for the assembly of protein subunits. Using a series of template mutations, we show that translocation or dissociation site variability and template-primer slippage account for the sequence heterogeneity of fission yeast telomeres.