Functional proteins of complex eukaryotes within the same species are rather invariant. A single catalytic component of telomerase TERT is essential for an active telomerase complex that maintains telomeres. Surprisingly, we have identified two paralogous SpTERT-L and SpTERT-S genes with novel domains in Strongylocentrotus purpuratus (purple sea urchin). The SpTERT-S and SpTERT-L genes were differentially expressed throughout embryogenesis. An unusual germline nucleotide substitution and amino acid variation was evident in these TERTs. The hypervariability of SpTERT-S haplotypes among different individuals reached unprecedented levels of pi > 0.2 in exon 11 region. The majority of nucleotide changes observed led to nonsynonymous substitutions creating novel amino acids and motifs, suggesting unusual positive selection and rapid evolution. The majority of these variations were in domains involved in binding of SpTERT to its RNA component. Despite hypervariability at protein level, SpTERT-S conferred telomerase activity, and its suppression during early embryogenesis led to arrest at late mesenchymal blastula. Domain exchange and embryo rescue experiments suggested that SpTERT may have evolved functions unrelated to classic telomerase activity. We suggest that telomerase has a specific and direct function that is essential for integration of early polarity signals that lead to gastrulation. Identification of these unique hypervariable telomerases also suggests presence of a diversity generation mechanism that inculcates hypervariable telomerases and telomere lengths in germline.