The Saccharomyces cerevisiae SGS1 gene encodes a RecQ-like DNA helicase, human homologues of which are implicated in the genetic instability disorders, Bloom syndrome (BS), Rothmund-Thomson syndrome (RTS), and Werner syndrome (WS). Telomerase-negative yeast cells can recover from senescence via two recombinational telomere elongation pathways. The "type I" pathway generates telomeres with large blocks of telomeric and subtelomeric sequences and short terminal repeat tracts. The "type II" pathway generates telomeres with extremely long heterogeneous terminal repeat tracts, reminiscent of the long telomeres observed in telomerase-deficient human tumors and tumor-derived cell lines. Here, we report that telomerase-negative (est2) yeast cells lacking SGS1 senesced more rapidly, experienced a higher rate of telomere erosion, and were delayed in the generation of survivors. The est2 sgs1 survivors that were generated grew poorly, arrested in G(2)/M and possessed exclusively type I telomeres, implying that SGS1 is critical for the type II pathway. The mouse WS gene suppressed the slow growth and G(2)/M arrest phenotype of est2 sgs1 survivors, arguing that the telomeric function of SGS1 is conserved. Reintroduction of SGS1 into est2 sgs1 survivors restored growth rate and extended terminal tracts by approximately 300 bp. Both phenotypes were absolutely dependent on Sgs1 helicase activity. Introduction of an sgs1 carboxyl-terminal truncation allele with helicase activity restored growth rate without extending telomeres in most cases, demonstrating that type II telomeres are not necessary for normal growth in the absence of telomerase.