TERT promoter mutations (TPMs) are the most common noncoding mutations in cancer. The timing and consequences of TPMs have not been fully established. Here, we show that TPMs acquired at the transition from benign nevus to malignant melanoma do not support telomere maintenance. In vitro experiments revealed that TPMs do not prevent telomere attrition, resulting in cells with critically short and unprotected telomeres. Immortalization by TPMs requires a gradual up-regulation of telomerase, coinciding with telomere fusions. These data suggest that TPMs contribute to tumorigenesis by promoting immortalization and genomic instability in two phases. In an initial phase, TPMs do not prevent bulk telomere shortening but extend cellular life span by healing the shortest telomeres. In the second phase, the critically short telomeres lead to genome instability and telomerase is further up-regulated to sustain cell proliferation.