Telomere shortening is common in bone marrow failure syndromes such as dyskeratosis congenita (DC), aplastic anemia (AA) and myelodysplastic syndromes (MDS). However, improved knowledge of the lineage-specific consequences of telomere erosion and restoration of telomere length in hematopoietic progenitors is required to advance therapeutic approaches. We have employed a reversible murine model of telomerase deficiency to compare the dependence of erythroid and myeloid lineage differentiation on telomerase activity. Fifth generation Tert-/- (G5 Tert-/-) mice with shortened telomeres have significant anemia, decreased erythroblasts and reduced hematopoietic stem cell (HSC) populations associated with neutrophilia and increased myelopoiesis. Intracellular multiparameter analysis by mass cytometry showed significantly reduced cell proliferation and increased sensitivity to activation of DNA damage checkpoints in erythroid progenitors and in erythroid-biased CD150hi HSC, but not in myeloid progenitors. Strikingly, Cre-inducible reactivation of telomerase activity restored hematopoietic stem and progenitor cell (HSPC) proliferation, normalized the DNA damage response, and improved red cell production and hemoglobin levels. These data establish a direct link between the loss of TERT activity, telomere shortening and defective erythropoiesis and suggest that novel strategies to restore telomerase function may have an important role in the treatment of the resulting anemia.