Human telomeres possess a single-stranded DNA (ssDNA) overhang of TTAGGG repeats, which can self-fold into a G-quadruplex structure. POT1 binds specifically to the telomeric overhang and partners with TPP1 to regulate telomere lengthening and capping, although the mechanism remains elusive. Here, we show that POT1 binds stably to folded telomeric G-quadruplex DNA in a sequential manner, one oligonucleotide/oligosaccharide binding fold at a time. POT1 binds from 3' to 5', thereby unfolding the G-quadruplex in a stepwise manner. In contrast, the POT1-TPP1 complex induces a continuous folding and unfolding of the G-quadruplex. We demonstrate that POT1-TPP1 slides back and forth on telomeric DNA and also on a mutant telomeric DNA to which POT1 cannot bind alone. The sliding motion is specific to POT1-TPP1, as POT1 and ssDNA binding protein gp32 cannot recapitulate this activity. Our results reveal fundamental molecular steps and dynamics involved in telomere structure regulation.