Telomerase in Saccharomyces cerevisiae consists of three protein subunits and the RNA moiety TLC1, which together ensure the complete replication of chromosome ends. TLC1 shares several features with snRNA, among them the presence of a trimethylguanosine (m3G) cap structure at the 5′ end of the RNA. Here, we report that the yeast snRNA and snoRNA methyltransferase Tgs1 is responsible for TLC1 m3G cap formation. The absence of Tgs1 caused changes in telomere length and structure, improved telomeric silencing and stabilized telomeric recombination. Genetic analyses implicated a role for the TLC1 m3G cap in the coordination between telomerase and DNA polymerase for end replication. Furthermore, tgs1Δ cells displayed a shortened replicative lifespan, suggesting that the loss of the m3G cap of TLC1 causes premature aging.