The telomerase reverse transcriptase synthesizes new telomeres onto chromosome ends by copying from a short template within its integral RNA component. During telomere synthesis, telomerase adds multiple short DNA repeats successively, a property known as repeat addition processivity. However, the consequences of defects in processivity on telomere length maintenance are not fully known. Germline mutations in telomerase cause haploinsufficiency in syndromes of telomere shortening, which most commonly manifest in the age-related disease idiopathic pulmonary fibrosis. We identified two pulmonary fibrosis families that share two non-synonymous substitutions in the catalytic domain of the telomerase reverse transcriptase gene hTERT: V791I and V867M. The two variants fell on the same hTERT allele and were associated with telomere shortening. Genealogy suggested that the pedigrees shared a single ancestor from the nineteenth century, and genetic studies confirmed the two families had a common founder. Functional studies indicated that, although the double mutant did not dramatically affect first repeat addition, hTERT V791I-V867M showed severe defects in telomere repeat addition processivity in vitro. Our data identify an ancestral mutation in telomerase with a novel loss-of-function mechanism. They indicate that telomere repeat addition processivity is a critical determinant of telomere length and telomere-mediated disease.