Pathways that direct the selection of the telomerase-dependent or recombination-based, alternative lengthening of telomere (ALT) maintenance pathway in cancer cells are poorly understood. Using human lung cancer cells and tumor organoids we show that formation of the 2,2,7-trimethylguanosine (TMG) cap structure at the human telomerase RNA 5′ end by the Trimethylguanosine Synthase 1 (TGS1) is central for recruiting telomerase to telomeres and engaging Cajal bodies in telomere maintenance. TGS1 depletion or inhibition by the natural nucleoside sinefungin impairs telomerase recruitment to telomeres leading to Exonuclease 1 mediated generation of telomere 3′ end protrusions that engage in RAD51-dependent, homology directed recombination and the activation of key features of the ALT pathway. This indicates a critical role for 2,2,7-TMG capping of the RNA component of human telomerase (hTR) in enforcing telomerase-dependent telomere maintenance to restrict the formation of telomeric substrates conductive to ALT. Our work introduces a targetable pathway of telomere maintenance that holds relevance for telomere-related diseases such as cancer and aging.