Telomerase is activated in most human cancers and is critical for cancer cell growth. However, little is known about the significance of telomerase activation in chromosome instability and cancer initiation. The gene encoding the potent endogenous telomerase inhibitor PinX1 (PIN2/TRF1-interacting, telomerase inhibitor 1) is located at human chromosome 8p23, a region frequently exhibiting heterozygosity in many common human cancers, but the function or functions of PinX1 in development and tumorigenesis are unknown. Here we have shown that PinX1 is a haploinsufficient tumor suppressor essential for chromosome stability in mice. We found that PinX1 expression was reduced in most human breast cancer tissues and cell lines. Furthermore, PinX1 heterozygosity and PinX1 knockdown in mouse embryonic fibroblasts activated telomerase and led to concomitant telomerase-dependent chromosomal instability. Moreover, while PinX1-null mice were embryonic lethal, most PinX1^+/– mice spontaneously developed malignant tumors with evidence of chromosome instability. Notably, most PinX1 mutant tumors were carcinomas and shared tissues of origin with human cancer types linked to 8p23. PinX1 knockout also shifted the tumor spectrum of p53 mutant mice from lymphoma toward epithelial carcinomas. Thus, PinX1 is a major haploinsufficient tumor suppressor essential for maintaining telomerase activity and chromosome stability. These findings uncover what we believe to be a novel role for PinX1 and telomerase in chromosome instability and cancer initiation and suggest that telomerase inhibition may be potentially used to treat cancers that overexpress telomerase.