In a search for genes involved in cell-type-dependent chromosome instability, we have found a role for NEJ1, a regulator of nonhomologous end joining (NHEJ), in cells that survive in the absence of telomerase. In yeast, NHEJ is regulated by mating-type status through NEJ1, which is repressed in a/alpha cells. For efficient NHEJ, NEJ1 is required as part of a complex with LIF1 and DNL4, which catalyzes DNA ligation. In haploid cells without telomerase, we find that the absence of NEJ1 results in high frequencies of circular chromosomes in type II survivors (i.e., those typified by lengthened telomere repeat tracts). These telomere fusion events are DNL4 dependent. NEJ1 therefore has a role in protecting telomeres from end fusions by NHEJ in the absence of telomerase that contrasts with its role in promoting repair at sites of DNA double-strand breaks.