Telomere maintenance is regarded as a key mechanism in overcoming cellular senescence in tumor cells and in most cases is achieved by the activation of telomerase. However there is at least one alternative mechanism of telomere lengthening (ALT) which is characterized by heterogeneous and elongated telomeres in the absence of telomerase activity (TA). We evaluated the prevalence of TA, gene expression of telomerase subunits and ALT in relation to telomere morphology and function in matrix producing bone tumors and in osteosarcoma cell lines and present evidence of a direct association of ALT with telomere dysfunction and chromosomal instability. Telomere fluorescence in situ hybridization (T-FISH) in ALT cells revealed elongated and shortened telomeres, partly in unusual configurations and loci, dicentric marker chromosomes and signal-free chromosome ends. Free ends give rise to end-to-end associations and may induce breakage-fusion-bridge cycles resulting in an increased number of complex chromosomal rearrangements, as detected by multiplex-FISH (M-FISH). We propose that ALT cannot be seen as an equivalent to telomerase activity in telomere maintenance. Its association with telomere dysfunction and chromosomal instability may have major implications for tumor progression.