Telomeres play an important role in protecting the ends of chromosomes and preventing chromosome fusion. We have previously demonstrated that double-strand breaks near telomeres in mammalian cells result in either the addition of a new telomere at the site of the break, termed chromosome healing, or sister chromatid fusion that initiates chromosome instability. In the present study, we have investigated the role of telomerase in chromosome healing and the importance of chromosome healing in preventing chromosome instability. In embryonic stem cell lines that are wild type for the catalytic subunit of telomerase (TERT), chromosome healing at I-SceI-induced double-strand breaks near telomeres accounted for 22 of 35 rearrangements, with the new telomeres added directly at the site of the break in all but one instance. In contrast, in two TERT-knockout embryonic stem cell lines, chromosome healing accounted for only 1 of 62 rearrangements, with a 23 bp insertion at the site of the sole chromosome-healing event. However, in a third TERT-knockout embryonic stem cell line, 10PTKO-A, chromosome healing was a common event that accounted for 20 of 34 rearrangements. Although this chromosome healing also occurred at the I-SceI site, differences in the microhomology at the site of telomere addition demonstrated that the mechanism was distinct from that in wild-type embryonic stem cell lines. In addition, the newly added telomeres in 10PTKO-A shortened with time in culture, eventually resulting in either telomere elongation through a telomerase-independent mechanism or loss of the subtelomeric plasmid sequences entirely. The combined results demonstrate that chromosome healing can occur through both telomerase-dependent and -independent mechanisms, and that although both mechanisms can prevent degradation and sister chromatid fusion, neither mechanism is efficient enough to prevent sister chromatid fusion from occurring in many cells experiencing double-strand breaks near telomeres.