Mismatch repair has a central role in maintaining genomic stability by repairing DNA replication errors and inhibiting recombination between non-identical (homeologous) sequences. Defects in mismatch repair have been linked to certain human cancers, including hereditary non-polyposis colorectal cancer (HNPCC) and sporadic tumours. A crucial requirement for tumour cell proliferation is the maintenance of telomere length, and most tumours achieve this by reactivating telomerase. In both yeast and human cells, however, telomerase-independent telomere maintenance can occur as a result of recombination-dependent exchanges between often imperfectly matched telomeric sequences. Here we show that loss of mismatch-repair function promotes cellular proliferation in the absence of telomerase. Defects in mismatch repair, including mutations that correspond to the same amino-acid changes recovered from HNPCC tumours, enhance telomerase-independent survival in both Saccharomyces cerevisiae and a related budding yeast with a degree of telomere sequence homology that is similar to human telomeres. These results indicate that enhanced telomeric recombination in human cells with mismatch-repair defects may contribute to cell immortalization and hence tumorigenesis.