Background & Aims: During early stages of carcinogenesis most human epithelial cancers including hepatocellular carcinoma (HCC) have been observed to transit through a "crisis" stage characterized by telomere shortening, loss of p53 checkpoint function, and a sharp increase in aneuploidy. The function of telomerase during in vivo hepatocarcinogenesis has not been studied in this genetic context. Methods: Here we generated a mouse model in which HCC was induced by chronic organ damage (HBs-AG transgene) in the presence of telomere shortening and p53 deletion. Tumor development was analyzed in late-generation telomerase knockout mice (mTERC-/-) and littermates, genetically rescued for telomerase gene expression (mTERC+/-). Results: The formation of HCCs was strongly suppressed in mTERC-/- mice compared to mTERC+/- siblings correlating with reduced rates of tumor cell proliferation and elevated rates of tumor cell apoptosis. Although the prevalence of short telomeres was similar in chronically damaged liver of both cohorts, mTERC-/- HCC developed increased levels of DNA damage and aneuploidy compared to mTERC+/- HCC. Conclusions: This study provides direct evidence that telomerase is a critical component for in vivo progression of p53 mutant HCC with short telomeres in the chronically damaged liver. In this molecular context, telomerase limits the accumulation of telomere dysfunction, the evolution of excessive aneuploidy, and the activation of p53-independent checkpoints suppressing hepatocarcinogenesis. © 2007 AGA Institute.