Telomere chromatin structure is pivotal for maintaining genome stability by regulating the binding of telomere-associated proteins and inhibiting the DNA damage response. In Saccharomyces cerevisiae, silent information regulator (Sir) proteins bind to terminal repeats and to subtelomeric X-elements, resulting in transcriptional silencing. Herein, we show that sir2 mutant strains display a specific loss of a nucleosome residing in the X-elements and that this deficiency is remarkably consistent between different telomeres. The X-elements contain several binding sites for the transcription factor Reb1 and we found that Sir2 and Reb1 compete for stabilizing/destabilizing this nucleosome, i.e. inactivation of Reb1 in a sir2 background reinstated the lost nucleosome. The telomeric-repeat-containing RNAs (TERRAs) originate from subtelomeric regions and extend into the terminal repeats. Both Sir2 and Reb1 repress TERRAs and in a sir2 reb1 double mutant, TERRA levels increased synergistically, showing that Sir2 and Reb1 act in different pathways for repressing TERRAs. We present evidence that Reb1 restricts TERRAs by terminating transcription. Mapping the 5'-ends of TERRAs from several telomeres revealed that the Sir2-stabilized nucleosome is the first nucleosome downstream from the transcriptional start site for TERRAs. Finally, moving an X-element to a euchromatic locus changed nucleosome occupancy and positioning, demonstrating that X-element nucleosome structure is dependent on the local telomere environment.