Previous work in budding yeast has indicated that telomeres are protected, at least in part, from the action of Exo1, which degrades the C-rich strand of partially uncapped telomeres. To explore this further, we examined the consequences of Exo1-mediated activity in strains that lacked Ku, telomerase, or both. Loss of Exo1 partially rescued the telomere length defect in a yku80delta strain, demonstrating that exonuclease action can directly contribute to telomere shortening. The rapid loss of inviability displayed by a yku80delta est2delta strain was also partially alleviated by an exo1delta mutation, further supporting the proposal that Exo1 is one target of the activities that normally protect wild-type telomeres. Conversely, however, Exo1 activity was also capable of enhancing telomere function and consequently cell proliferation, by contributing to a telomerase-independent pathway for telomere maintenance. The recovery of recombination-dependent survivors that arose in a yku80delta est2delta strain was partially dependent on Exo1 activity. Furthermore, the types of recombination events that facilitate telomerase-independent survival were influenced by Exo1 activity, in both est2delta and yku80delta est2delta strains. These data demonstrate that Exo1 can make either positive or negative contributions to telomere function and cell viability, depending on whether telomerase or recombination is utilized to maintain telomere function.