Abstract In most human somatic cells, the lack of telomerase activity results in progressive telomere shortening during each cell division. Eventually, DNA damage responses triggered by critically short telomeres induce an irreversible cell cycle arrest termed replicative senescence. However, the cellular responses of human pluripotent stem cells to telomere uncapping remain unknown. We generated telomerase knockout human embryonic stem (ES) cells through gene targeting. Telomerase inactivation in ES cells results in progressive telomere shortening. Telomere DNA damage in ES cells and neural progenitor cells induces rapid apoptosis when telomeres are uncapped, in contrast to fibroblast cells that enter a state of replicative senescence. Significantly, telomerase inactivation limits the proliferation capacity of human ES cells without affecting their pluripotency. By targeting telomerase activity, we can functionally separate the two unique properties of human pluripotent stem cells, namely unlimited self-renewal and pluripotency. We show that the potential of ES cells to form teratomas in vivo is dictated by their telomere length. By controlling telomere length of ES cells through telomerase inactivation, we can inhibit teratoma formation and potentially improve the safety of cell therapies involving terminally differentiated cells as well as specific progenitor cells that do not require sustained cellular proliferation in vivo, and thus sustained telomerase activity.