In all telomerases, the template region of the RNA subunit contains a region of telomere homology that is longer than the unit telomeric repeat. This allows a newly synthesized telomeric repeat to translocate back to the 3' end of the template prior to a second round of telomeric repeat synthesis. In the yeast Kluyveromyces lactis, the telomerase RNA (Ter1) template has 30 nucleotides of perfect homology to the 25-bp telomeric repeat. Here we provide strong evidence that three additional nucleotides at positions -2 through -4 present on the 3' side of the template form base-pairing interactions with telomeric DNA. Mutation of these bases can lead to opposite effects on telomere length depending on the sequence permutation of the template in a manner consistent with whether the mutation increases or decreases the base-pairing potential with the telomere. Additionally, mutations in the -2 and -3 positions that restore base-pairing potential can suppress corresponding sequence changes in the telomeric repeat. Finally, multiple other yeast species were found to also have telomerase RNAs that encode relatively long 7- to 10-nucleotide domains predicted to base pair, often with imperfect pairing, with telomeric DNA. We further demonstrate that K. lactis telomeric fragments produce banded patterns with a 25-bp periodicity. This indicates that K. lactis telomeres have preferred termination points within the 25-bp telomeric repeat.