Telomerase activity was demonstrated in cell-free extracts from S. cerevisiae through the use of a PCR-based assay. As expected, this activity was eliminated by RNase or phenol treatment of the extract and was dependent on dGTP and dTTP. Telomerase was not detected in extracts prepared from cells grown for approximately 30 or more cell divisions in the absence of the EST1 product, Est1p. TLC1 RNA, which determines the sequence of telomeric DNA in vivo, was present in normal amounts in est1 delta cells. Moreover, TLC1 RNA specifically precipitated with epitope-tagged Est1p. These data indicate that Est1p is either a subunit of yeast telomerase or an accessory protein associated with telomerase that is essential in vitro for its activity.