The telomerase ribonucleoprotein has a phylogenetically divergent RNA subunit, which contains a short template for telomeric DNA synthesis. To understand how telomerase RNA participates in mechanistic aspects of telomere synthesis, we studied a conserved secondary structure adjacent to the template. Disruption of this structure caused DNA synthesis to proceed beyond the normal template boundary, resulting in altered telomere sequences, telomere shortening, and cellular growth defects. Compensatory mutations restored normal telomerase function. Thus, the RNA structure, rather than its sequence, specifies the template boundary. This study reveals a specific function for an RNA structure in the enzymatic action of telomerase.