Tumours and immortalized cells avoid telomere attrition by using either the ribonucleoprotein enzyme telomerase or a recombination-based alternative lengthening of telomeres (ALT) mechanism. Available evidence from mice suggests that the epigenetic state of the telomere may influence the mechanism of telomere maintenance, but this has not been directly tested in human cancer. Here we investigated cytosine methylation directly adjacent to the telomere as a marker of the telomere's epigenetic state in a panel of human cell lines. We find that while ALT cells show highly heterogeneous patterns of subtelomeric methylation, subtelomeric regions in telomerase-positive cells invariably show denser methylation than normal cells, being almost completely methylated. When compared to matched normal and ALT cells, telomerase-positive cells also exhibit reduced levels of the telomeric repeat-containing-RNA (TERRA), whose transcription originates in the subtelomere. Our results are consistent with the notion that TERRA may inhibit telomerase: the heavy cytosine methylation we observe in telomerase-positive cells may reflect selection for TERRA silencing in order to facilitate telomerase activity at the telomere. These data suggest that the epigenetic differences between telomerase-positive and ALT cells may underlie the mechanism of telomere maintenance in human tumorigenesis and highlight the broad reaching consequences of epigenetic dysregulation in cancer.