Telomerase contributes to chromosome end replication by synthesizing repeats of telomeric DNA, and the telomeric DNA-binding proteins protection of telomeres (POT1) and TPP1 synergistically increase its repeat addition processivity. To understand the mechanism of increased processivity, we measured the effect of POT1-TPP1 on individual steps in the telomerase reaction cycle. Under conditions where telomerase was actively synthesizing DNA, POT1-TPP1 bound to the primer decreased primer dissociation rate. In addition, POT1-TPP1 increased the translocation efficiency. A template-mutant telomerase that synthesizes DNA that cannot be bound by POT1-TPP1 exhibited increased processivity only when the primer contained at least one POT1-TPP1-binding site, so a single POT1-TPP1-DNA interaction is necessary and sufficient for stimulating processivity. The POT1-TPP1 effect is specific, as another single-stranded DNA-binding protein, gp32, cannot substitute. POT1-TPP1 increased processivity even when substoichiometric relative to the DNA, providing evidence for a recruitment function. These results support a model in which POT1-TPP1 enhances telomerase processivity in a manner markedly different from the sliding clamps used by DNA polymerases.