Telomeres are transcribed into non-coding TElomeric Repeat containing RNAs (TERRA). We have employed a transcriptionally inducible telomere to investigate how telomere transcription affects telomere function in Saccharomyces cerevisiae. We report that telomere shortening resulting from high levels of telomere transcription stems from a DNA replication-dependent loss of telomere tracts, which can occur independent of both telomerase inhibition and homologous recombination. We show that in order for telomere loss to occur, transcription must pass through the telomere tract itself producing a TERRA molecule. We demonstrate that increased telomere transcription of a single telomere leads to a premature cellular senescence in the absence of a telomere maintenance mechanism (telomerase and homology directed repair). Similar rapid senescence and telomere shortening are also seen in sir2Δ cells with compromised telomere maintenance, where TERRA levels are increased at natural telomeres. These data suggest that telomere transcription must be tightly controlled to prevent telomere loss and early onset senescence.