Telomerase, the enzyme that maintains telomeres at natural chromosome ends, should be repressed at double-strand breaks (DSBs), where neotelomere formation can cause terminal truncations. We developed an assay to detect neotelomere formation at Cas9- or I-SceI-induced DSBs in human cells. Telomerase added telomeric repeats to DSBs, leading to interstitial telomeric repeat insertions or the formation of functional neotelomeres accompanied by terminal deletions. The threat that telomerase poses to genome integrity was minimized by ataxia telangiectasia and Rad3-related (ATR) kinase signaling, which inhibited telomerase at resected DSBs. In addition to acting at resected DSBs, telomerase used the extruded strand in the Cas9 enzyme-product complex as a primer for neotelomere formation. We propose that although neotelomere formation is detrimental in normal human cells, it may allow cancer cells to escape from breakage-fusion-bridge cycles.