The ribonucleoprotein enzyme telomerase adds telomeric DNA to chromosomal ends. In most eukaryotes the telomeric repeat units are repeated precisely, consistent with the action of a telomerase that faithfully copies its RNA template. In contrast, Saccharomyces cerevisiae telomeric repeats are degenerate, suggesting that its telomerase has unusual mechanistic properties. We mutated the S. cerevisiae telomerase RNA (TLC1) with a series of 3-base (GUG) substitutions in and next to the 17-nucleotide templating domain. All mutant telomerases were active in TLC1/tlc1 diploids and synthesized patterns of mixed wild-type and mutant telomeric repeats into telomeric DNA, consistent with nonprocessive action. Telomerase isolated from cells containing each mutated tlc1 allele by itself had altered reaction properties in vitro. One mutant template enzyme, 476GUG, was active in vivo and in vitro in the presence of wild-type TLC1 RNA but lacked detectable activity in its absence. Haploid tlc1-476GUG cells containing only this mutant tlc1 allele underwent senescence. Other tlc1 template region mutations allowed maintenance of shortened telomeres in vivo but altered specific enzymatic properties of telomerase in vitro, including induction of primer-template slippage (472GUG) or alteration of the 5' boundary of the template (467GUG). These data demonstrate that telomerase RNA bases influence enzyme activity profoundly, suggesting that their roles are not confined to serving simply as the template for this specialized reverse transcriptase.