Telomerase adds telomeric repeats to chromosome ends by processive copying of a template within the telomerase RNA bound to telomerase reverse transcriptase. Telomerase RNAs have single-stranded regions that separate the template from a 5' stem and 3' pseudoknot, and mammals gained additional stem P2a.1 separating the template from the pseudoknot. Using human telomerase, we show that the length of template 3'-flanking single-stranded RNA is a determinant of repeat addition processivity whereas template 5'-flanking single-stranded RNA and P2a.1 are critical for activity but not processivity. In comparison, requirements for the template sequence itself are confounding: different substitutions of the same position have strikingly different consequences, from improved processivity and activity to complete inactivation. We discovered that some altered-template sequences stabilize an alternative RNA conformation that precludes the pseudoknot by base-pairing of one pseudoknot strand to the template 3' end. Using mutations to reduce over-stability of the alternative conformation, we restore high activity and processivity to otherwise inactive altered-template telomerase ribonucleoproteins. In cells, over-stabilization or destabilization of the alternative state severely inhibited biogenesis of active telomerase. Our findings delineate roles for human telomerase RNA template-flanking regions, establish a biologically relevant pseudoknot-alternative RNA conformation, and expand the repertoire of human telomerase repeat synthesis.