Telomerase is a ribonucleoprotein reverse transcriptase (RT) that synthesizes specific DNA repeats, or telomeric DNA, at the ends of chromosomes. Telomerase is minimally composed of a protein subunit, TERT, and an RNA component, TR. Aberrant telomerase activity has been associated with most human cancers and several premature aging diseases, such as idiopathic pulmonary fibrosis (IPF), a chronic, progressive, and fatal lung disease characterized by alveolar epithelial cell damage and fibrosis. Our study focuses on three hTERT mutations that were identified in a subset of patients with IPF, in which these patients also exhibited shorter telomeres compared with age‐matched controls. We characterized how three IPF‐associated hTERT mutations, V144M, R865C, and R865H, affected telomerase function both in vitro and in human cells. We demonstrated that the R865 residue is crucial for repeat addition processivity and thus telomere synthesis in telomerase‐positive 293 cells and telomerase‐negative BJ cells, consistent with its location in the hTERT nucleotide‐binding motif. In contrast, while the V144M mutant did not exhibit any biochemical defects, this mutant was unable to elongate telomeres in human cells. As a result, our studies have identified hTERT V144 and R865 as two critical residues required for proper telomerase function in cells. Together, this may explain how inherited hTERT mutations can lead to shortened telomeres in patients with IPF and, thus, provide further insight into the role of naturally occurring telomerase mutations in the pathophysiology of certain age‐related disease states.