Telomere dysfunction has been proposed to contribute to the pathogenesis of Werner syndrome (WS), a premature-aging disorder. The WS protein WRN binds TRF2, a telomere-specific factor that protects chromosome ends. TRF2 possesses an amino-terminal domain that plays an essential role in preventing telomere shortening, as expression of TRF2(DeltaB), which lacks this domain, leads to the formation of telomeric circles, telomere shortening, and cell senescence. Our data show that the TRF2(DeltaB)-induced telomeric-loop homologous-recombination pathway requires WRN helicase. In addition, we show that WRN represses the formation of spontaneous telomeric circles, as demonstrated by the increased levels of telomeric circles observed in telomerase-positive WS fibroblasts. The mechanism of circle formation in WS cells does not involve XRCC3 function. Circle formation in WS cells is reduced by reconstitution with wild-type WRN but not mutant forms lacking either exonuclease or helicase activity, demonstrating that both enzymatic activities of WRN are required to suppress telomeric-circle formation in normal cells expressing telomerase reverse transcriptase. Thus, WRN has a key protective function at telomeres which influences telomere topology and inhibits accelerated attrition of telomeres.