In most eukaryotes, the progressive loss of chromosome-terminal DNA sequences is counteracted by the enzyme telomerase, a reverse transcriptase that uses part of an RNA subunit as template to synthesize telomeric repeats. Many cancer cells express high telomerase activity, and mutations in telomerase subunits are associated with degenerative syndromes including dyskeratosis congenita and aplastic anaemia. The therapeutic value of altering telomerase activity thus provides ample impetus to study the biogenesis and regulation of this enzyme in human cells and model systems. We have previously identified a precursor of the fission yeast telomerase RNA subunit (TER1)(1) and demonstrated that the mature 3'-end is generated by the spliceosome in a single cleavage reaction akin to the first step of splicing(2). Directly upstream and partly overlapping with the spliceosomal cleavage site is a putative binding site for Sm proteins. Sm and like-Sm (LSm) proteins belong to an ancient family of RNA-binding proteins represented in all three domains of life(3). Members of this family form ring complexes on specific sets of target RNAs and have critical roles in their biogenesis, function and turnover. Here we demonstrate that the canonical Sm ring and the Lsm2-8 complex sequentially associate with fission yeast TER1. The Sm ring binds to the TER1 precursor, stimulates spliceosomal cleavage and promotes the hypermethylation of the 5'-cap by Tgs1. Sm proteins are then replaced by the Lsm2-8 complex, which promotes the association with the catalytic subunit and protects the mature 3'-end of TER1 from exonucleolytic degradation. Our findings define the sequence of events that occur during telomerase biogenesis and characterize roles for Sm and Lsm complexes as well as for the methylase Tgs1.