The ribonucleoprotein enzyme telomerase is a specialized reverse transcriptase that synthesizes telomeric DNA by copying a template sequence within the telomerase RNA. Here we analyze the actions of telomerase from Tetrahymena thermophila assembled in vivo with mutated or wild-type telomerase RNA to define further the roles of particular telomerase RNA residues involved in essential enzymatic functions: templating, substrate alignment, and promotion of polymerization. Position 49 of the telomerase RNA defined the 3' templating residue boundary, demonstrating that seven positions, residues 43 to 49, are capable of acting as templating residues. We demonstrate directly that positioning of the primer substrate involves Watson-Crick base pairing between the primer with telomerase RNA residues. Unexpectedly, formation of a Watson-Crick base pair specifically between the primer DNA and telomerase RNA residue 50 is critical in promoting primer elongation. In contrast, mutant telomerase with the cytosine at position 49 mutated to a G exhibited efficient 3' mispair extension. This work provides new evidence for specific primer-telomerase interactions, as well as base-specific interactions involving the telomerase RNA, playing roles in essential active-site functions of telomerase.