DNA methyltransferase inhibitors (DNMTIs) such as 5-azacytidine (5-AZA) have been used for treatment of acute myeloid leukemia (AML) and other malignancies. Although inhibiting global/gene-specific DNA methylation is widely accepted as a key mechanism behind DNMTI anti-tumor activity, other mechanisms are likely involved in DNMTI's action. Because telomerase reverse transcriptase (TERT) plays key roles in cancer through telomere elongation and telomere lengthening-independent activities, and TERT has been shown to confer chemo- or radio-resistance to cancer cells, we determine whether DNMTIs affect telomere function and whether TERT/telomerase interferes with their anti-cancer efficacy. We showed that 5-AZA induced DNA damage and telomere dysfunction in AML cell lines by demonstrating the presence of 53-BP1 foci and the co-localization of 53-BP1 foci with telomere signals, respectively. Telomere dysfunction was coupled with diminished TERT expression, shorter telomere and apoptosis in 5-AZA-treated cells. However, 5-AZA treatment did not lead to changes in the methylation status of subtelomere regions. Down-regulation of TERT expression similarly occurred in primary leukemic cells derived from AML patients exposed to 5-AZA. TERT over-expression significantly attenuated 5-AZA-mediated DNA damage, telomere dysfunction and apoptosis of AML cells. Collectively, 5-AZA mediates the down-regulation of TERT expression, and induces telomere dysfunction, which consequently exerts an anti-tumor activity.