In the absence of functional telomeric cap protection, the ends of eukaryotic chromosomes are subject to DNA damage responses that lead to cell-cycle arrest and, eventually, genomic instability. However, the controlling activities responsible for the initiation of genome instability on unprotected telomeres remained unclear. Here we show that in budding yeast, unprotected telomeres undergo a tightly cell-cycle-regulated DNA degradation. Ablation of the function of essential capping proteins Cdc13p or Stn1p only caused telomere degradation in G2/M, but not in G1 of the cell cycle. Accordingly, G1-arrested cells with unprotected telomeres remained viable, while G2/M-arrested cells failed to recover. The data also show that completion of S phase and the activity of the S-Cdk1 kinase were required for telomere degradation. These results strongly suggest that after a loss of the telomere capping function, telomere-led genome instability is caused by tightly regulated cellular DNA repair attempts.