Telomere maintenance by the conventional DNA replication machinery and telomerase is assisted by specialized DNA helicases, nucleases and telomere binding proteins. Here, we identify the THO components at telomeres and define critical roles of this complex in telomere stability. Deletion of the THO-subunit THP2 leads to telomere shortening. We discover that telomeres contain RNA: DNA hybrid structures or R-loops which involve the long-non-coding RNA TERRA and which accumulate in thp2-Delta cells. Telomere length is not restored by R-loop removal upon RNase H overexpression, but by deletion of Exonuclease 1 (Exo1). Replication stress further enhances the short telomere phenotype of THP2 mutants. Similar events occur upon induced transcription of TERRA and genetic analysis links Thp2 to TERRA function. Altogether, our data indicate that THO, through the interplay with TERRA, regulates chromosome end processing activities and prevents interference with semiconservative DNA replication of telomeric DNA.