Telomerase is a ribonucleoprotein complex that is required for maintenance of linear chromosome ends (telomeres). In yeast, the Est2 protein reverse transcribes a short template region of the TLC1 RNA using the chromosome terminus to prime replication. Yeast telomeres contain heterogeneous G(1-3)T sequences that arise from incomplete reverse transcription of the TLC1 template and alignment of the DNA primer at multiple sites within the template region. We have previously described mutations in the essential N-terminal TEN domain of Est2p that alter telomere sequences. Here, we demonstrate that one of these mutants, glutamic acid 76 to lysine (est2-LT(E76K)), restricts possible alignments between the DNA primer and the TLC1 template. In addition, this mutant exhibits increased processivity in vivo. Within the context of the telomerase enzyme, the Est2p TEN domain is thought to contribute to enzyme processivity by mediating an anchor-site interaction with the DNA primer. We show that binding of the purified TEN domain (residues 1-161) to telomeric DNA is enhanced by the E76K mutation. These results support the idea that the anchor-site interaction contributes to telomerase processivity and suggest a role for the anchor site of yeast telomerase in mediating primer-template alignment within the active site.