Telomerase is a ribonucleoprotein that mediates extension of the dG-rich strand of telomeres in most eukaryotes. Like telomerase derived from ciliated protozoa, yeast telomerase is found to possess a tightly associated endonuclease activity that copurifies with the polymerization activity over different affinity-chromatographic steps. As is the case for ciliate telomerase, primers containing sequences that are not complementary to the RNA template can be efficiently cleaved by the yeast enzyme. More interestingly, we found that for the yeast enzyme, cleavage site selection is not stringent, since blocking cleavage at one site by the introduction of a nonhydrolyzable linkage can lead to the utilization of other sites. In addition, the reverse transcriptase activity of yeast telomerase can extend either the 5-or 3-end fragment following cleavage. Two general models that are consistent with the biochemical properties of the enzyme are presented: one model postulates two distinct active sites for the nuclease and reverse transcriptase, and the other invokes a multimeric enzyme with each protomer containing a single active site capable of mediating both cleavage and extension.Telomerase is a ribonucleoprotein that is responsible for maintaining the terminal repeats of telomeres in most organisms (1, 2, 28, 37). It acts as an unusual reverse transcriptase (RT), using a small segment of an integral RNA component as template for the synthesis of the dG-rich strand of telomeres (11,12). DNA synthesis by telomerase in vitro is primed by oligonucleotides with telomere-like sequences. Depending on the source, telomerase in vitro can act either processively, adding many copies of a repeat without dissociating, or nonprocessively, completing only one telomeric repeat (13,29,31).Telomerase activity has been detected in a wide range of organisms, including protozoa (2), yeasts (4,17,18,20,35), mice (31), Xenopus laevis (22), and humans (25). Genes encoding the RNA and RT subunit of the enzyme complex have also been cloned for many known telomerases (2,3,5,8,16,18,24,26,34). In addition, both biochemical and genetic studies point to the existence of additional protein subunits of telomerase, whose functions remain to be elucidated (7,9,15,19,27).A telomerase-associated nuclease has been identified in Tetrahymena thermophila, Euplotes crassus, Saccharomyces cerevisiae, and Schizosaccharomyces pombe (4,6,10,20,21,23,29). In the case of Tetrahymena telomerase, the associated nuclease has been found to remove one or several terminal primer nucleotides prior to polymerization. Enzyme reconstituted in rabbit reticulocyte lysates with p133 (the RT subunit) and telomerase RNA retains cleavage activity, suggesting that the nuclease resides in one of these two components (5). The nuclease from E. crassus has been thoroughly characterized using a coupled cleavage-elongation assay (10, 23), which revealed the following salient features: (i) cleavage proceeds by an endonucleolytic mechanism, (ii) DNA fragments from the 3Ј end can be eliminat...