Activation of the chromosome end-replicating enzyme telomerase can greatly extend the lifespan of normal human cells and is associated with most human cancers. In all eukaryotes examined, telomerase has an RNA subunit, a conserved reverse transcriptase subunit and additional proteins, but little is known about the assembly of these components. Here we show that the Saccharomyces cerevisiae telomerase RNA has a 5'-2,2,7-trimethylguanosine (TMG) cap and a binding site for the Sm proteins, both hallmarks of small nuclear ribonucleoprotein particles (snRNPs) that are involved in nuclear messenger RNA splicing. Immunoprecipitation of telomerase from yeast extracts shows that Sm proteins are assembled on the RNA and that most or all of the telomerase activity is associated with the Sm-containing complex. These data support a model in which telomerase RNA is transcribed by RNA polymerase II and 7-methylguanosine-capped, binds the seven Sm proteins, becomes TMG-capped and picks up the other protein subunits. We conclude that the functions of snRNPs assembled by this pathway are not restricted to RNA processing, but also include chromosome telomere replication.