Mutations in TERC, encoding the RNA component of telomerase, have been found in autosomal dominant dyskeratosis congenita (DC) and aplastic anemia (AA). Several polymorphisms also exist in the TERC gene, making functional testing of potential pathogenic mutations essential. Here, we have tested normal and mutant TERC molecules in 2 telomerase reconstitution assays, 1 in vitro and 1 in transfected telomerase-negative cells. We find that 2 polymorphic mutations G58A and G228A have no effect on telomerase activity in these assays, whereas 6 mutations found in DC and AA cause reduction or abolition of telomerase activity. Mutations in the pseudoknot region of the TERC molecule, C72G, 96-7DeltaCT, GC107-8AG and 110-3DeltaGACT reduce the catalytic activity of reconstituted telomerase, whereas mutations in the 3' portion of the molecule C408G and a deletion of the 3' 74 bases have normal activity in vitro but reduced intracellular activity. By analyzing second site mutations that recreate regions of secondary structure but retain the pathogenic mutations we show that mutations C72G, GC107-8AG, and C408G act by disrupting the secondary structure or folding of TERC. Finally, experiments reconstituting telomerase with both normal and mutant TERC molecules suggest the mutations act via haploinsufficiency rather than by a dominant-negative mechanism.