The telomerase enzyme lengthens telomeres, an activity essential for chromosome stability in most eukaryotes. The enzyme is composed of a specialized reverse transcriptase and a template RNA. In Saccharomyces cerevisiae, overexpression of TLC1, the telomerase RNA gene, disrupts telomeric structure. The result is both shortened telomere length and loss of a special chromatin structure that normally silences telomere-proximal genes. Because telomerase function is not required for telomeric silencing, we postulated that the dominant-negative effect caused by overexpression of TLC1 RNA originates in a normal interaction between the RNA and an unknown telomeric factor important for silencing; the overexpressed RNA presumably continues to bind the factor and compromises its function. Here we show that a 48-nt stem-loop structure within the 1.3-kb TLC1 RNA is necessary and sufficient for disrupting telomeric silencing and shortening telomeres. Moreover, this short RNA sequence appears to function through an interaction with the conserved DNA end-binding protein Ku. We propose that, in addition to its roles in telomeric silencing, homologous recombination and non-homologous end-joining (NHEJ), S. cerevisiae Ku also helps to recruit or activate telomerase at the telomere through an interaction with this stem-loop of TLC1 RNA.