Telomerase is a specialized enzyme that maintains telomere length by adding DNA repeats to chromosome ends. The catalytic protein subunit of telomerase utilizes the integral telomerase RNA to direct telomere DNA synthesis. The telomerase essential N-terminal (TEN) domain is required for enzyme function; however, the precise mechanism of the TEN domain during catalysis is not known. We report a single-molecule study of dynamic TEN-induced conformational changes in its nucleic acid substrates. The TEN domain from the yeast Candida parapsilosis (Cp) exhibits a strong binding preference for double-stranded nucleic acids, with particularly high affinity for an RNA-DNA hybrid mimicking the template-product complex. Surprisingly, the telomere DNA repeat sequence from C. parapsilosis forms a DNA hairpin that also binds CpTEN with high affinity. Mutations to several residues in a putative nucleic acid-binding patch of CpTEN significantly reduced its affinity to the RNA-DNA hybrid and telomere DNA hairpin. Substitution of comparable residues in the related Candida albicans TEN domain caused telomere maintenance defects in vivo and decreased primer extension activity in vitro. Collectively, our results support a working model in which dynamic interactions with telomere DNA and the template-product hybrid underlie the functional requirement for the TEN domain during the telomerase catalytic cycle.