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Chromosomal aberrations are a hallmark of human cancers, with complex cytogenetic rearrangements leading to genetic changes permissive for cancer initiation and progression. Protection of Telomere 1 (POT1) is an essential component of the shelterin complex and functions to maintain chromosome stability by repressing the activation of aberrant DNA damage and repair responses at telomeres. Sporadic and familial mutations in the oligosaccharide-oligonucleotide (OB) folds of POT1 have been identified in many human cancers, but the mechanism underlying how hPOT1 mutations initiate tumorigenesis has remained unclear. Here we show that the human POT1’s OB-folds are essential for the protection of newly replicated telomeres. Oncogenic mutations in hPOT1 OB-fold fail to bind to single-stranded telomeric DNA, eliciting a DNA damage response at telomeres that promote inappropriate chromosome fusions via the mutagenic alternative non-homologous end joining (A-NHEJ) pathway. hPOT1 mutations also result in telomere elongation and the formation of transplantable hematopoietic malignancies. Strikingly, conditional deletion of both mPot1a and p53 in mouse mammary epithelium resulted in development of highly invasive breast carcinomas and the formation of whole chromosomes containing massive arrays of telomeric fusions indicative of multiple breakage-fusion-bridge cycles. Our results reveal that hPOT1 OB-folds are required to protect and prevent newly replicated telomeres from engaging in A-NHEJ mediated fusions that would otherwise promote genome instability to fuel tumorigenesis.