Telomerase contributes to chromosome end replication by synthesizing repeats of telomeric DNA, and the telomeric DNA‐binding proteins protection of telomeres (POT1) and TPP1 synergistically increase its repeat addition processivity. To understand the mechanism of increased processivity, we measured the effect of POT1–TPP1 on individual steps in the telomerase reaction cycle. Under conditions where telomerase was actively synthesizing DNA, POT1–TPP1 bound to the primer decreased primer dissociation rate. In addition, POT1–TPP1 increased the translocation efficiency. A template‐mutant telomerase that synthesizes DNA that cannot be bound by POT1–TPP1 exhibited increased processivity only when the primer contained at least one POT1–TPP1‐binding site, so a single POT1–TPP1–DNA interaction is necessary and sufficient for stimulating processivity. The POT1–TPP1 effect is specific, as another single‐stranded DNA‐binding protein, gp32, cannot substitute. POT1–TPP1 increased processivity even when substoichiometric relative to the DNA, providing evidence for a recruitment function. These results support a model in which POT1–TPP1 enhances telomerase processivity in a manner markedly different from the sliding clamps used by DNA polymerases.