Telomere biology disorders (TBDs) are a spectrum of multisystem inherited disorders characterized by bone marrow failure, resulting from mutations in genes encoding telomerase or other proteins involved in maintaining telomere length and integrity. Pathogenicity of variants in these genes can be hard to evaluate, since TBD mutations show highly variable penetrance and genetic anticipation due to inheritance of shorter telomeres with each generation. Thus, detailed functional analysis of newly identified variants is often essential. Here we describe a patient with compound heterozygous variants in the TERT gene, which encodes the catalytic subunit of telomerase, hTERT; this patient has the extremely severe Hoyeraal-Hreidarsson form of TBD, although his heterozygous parents are clinically unaffected. Molecular dynamic modeling and detailed biochemical analyses demonstrate that 1 allele (L557P) affects association of hTERT with its cognate RNA component hTR, while the other (K1050E) affects the binding of telomerase to its DNA substrate and enzyme processivity. Unexpectedly, the data demonstrate a functional interaction between the proteins encoded by the 2 alleles, with WT hTERT able to rescue the effect of K1050E on processivity, whereas L557P hTERT cannot. These data contribute to the mechanistic understanding of telomerase, indicating that RNA binding in 1 hTERT molecule affects the processivity of telomere addition by the other molecule. This work emphasizes the importance of functional characterization of TERT variants to reach a definitive molecular diagnosis for TBD patients, and in particular it illustrates the importance of analyzing the effects of compound heterozygous variants in combination to reveal interallelic effects.