Changes in telomere length are associated with degenerative diseases and cancer. Oxidative stress and DNA damage have been linked to both positive and negative alterations in telomere length and integrity. Here we examined how the common oxidative lesion 8-oxo-7,8-dihydro-2'-deoxyguanine (8-oxoG) regulates telomere elongation by human telomerase. When 8-oxoG is present in the dNTP pool as 8-oxodGTP, telomerase utilization of the oxidized nucleotide during telomere extension is mutagenic and terminates further elongation. Depletion of MTH1, the enzyme that removes oxidized dNTPs, increases telomere dysfunction and cell death in telomerase-positive cancer cells with shortened telomeres. In contrast, a preexisting 8-oxoG within the telomeric DNA sequence promotes telomerase activity by destabilizing the G-quadruplex DNA structure. We show that the mechanism by which 8-oxoG arises in telomeres, either by insertion of oxidized nucleotides or by direct reaction with free radicals, dictates whether telomerase is inhibited or stimulated and thereby mediates the biological outcome.