Drosophila telomeres are elongated by transposition of specialized retroelements rather than telomerase activity and are assembled independently of the sequence. Fly telomeres are protected by the terminin complex that localizes and functions exclusively at telomeres and by non-terminin proteins that do not serve telomere-specific functions. We show that mutations in the Drosophila Separase encoding gene Sse lead not only to endoreduplication but also telomeric fusions (TFs), suggesting a role for Sse in telomere capping. We demonstrate that Separase binds terminin proteins and HP1, and that it is enriched at telomeres. Furthermore, we show that loss of Sse strongly reduces HP1 levels, and that HP1 overexpression in Sse mutants suppresses TFs, suggesting that TFs are caused by a HP1 diminution. Finally, we find that siRNA-induced depletion of ESPL1, the Sse human orthologue, causes telomere dysfunction and HP1 level reduction in primary fibroblasts, highlighting a conserved role of Separase in telomere protection.