Telomeres are eukaryotic protein-DNA complexes found at the ends of linear chromosomes that are essential for maintaining genome integrity and are implicated in cellular aging and cancer. The guanine (G)-rich strand of telomeric DNA, usually elongated by the telomerase reverse transcriptase, can form a higher-order structure known as a G-quadruplex in vitro and in vivo. Several factors that promote or resolve G-quadruplexes have been identified, but the functional importance of these structures for telomere maintenance is not well understood. Here we show that the yeast telomerase subunit Est1p, known to be involved in telomerase recruitment to telomeres, can convert single-stranded telomeric G-rich DNA into a G-quadruplex structure in vitro in a Mg(2+)-dependent manner. Cells carrying Est1p mutants deficient in G-quadruplex formation in vitro showed gradual telomere shortening and cellular senescence, indicating a positive regulatory role for G-quadruplex in the maintenance of telomere length.