Telomeres play crucial roles in the maintenance of genome integrity and control of cellular senescence. Most eukaryotic telomeres can be transcribed to generate a telomeric repeat-containing RNA (TERRA) that persists as a heterogeneous nuclear RNA and can be developmentally regulated. However, the precise function and regulation of TERRA in normal and cancer cell development remains poorly understood. Here, we show that TERRA accumulates in highly proliferating normal and cancer cells, and forms large nuclear foci, which are distinct from previously characterized markers of DNA damage or replication stress. Using a mouse model for medulloblastoma driven by chronic Sonic hedgehog (SHH) signaling, TERRA RNA was detected in tumor, but not adjacent normal cells using both RNA fluorescence in situ hybridization (FISH) and northern blotting. RNA FISH revealed the formation of TERRA foci (TERFs) in the nuclear regions of rapidly proliferating tumor cells. In the normal developing cerebellum, TERRA aggregates could also be detected in highly proliferating zones of progenitor neurons. SHH could enhance TERRA expression in purified granule progenitor cells in vitro, suggesting that proliferation signals contribute to TERRA expression in responsive tissue. TERRA foci did not colocalize with γH2AX foci, promyelocytic leukemia (PML) or Cajal bodies in mouse tumor tissue. We also provide evidence that TERRA is elevated in a variety of human cancers. These findings suggest that elevated TERRA levels reflect a novel early form of telomere regulation during replication stress and cancer cell evolution, and the TERRA RNA aggregates may form a novel nuclear body in highly proliferating mammalian cells.