To examine the role of telomeric repeat-binding factor 2 (TRF2) in epithelial tumorigenesis, we characterized conditional loss of TRF2 expression in the basal layer of mouse epidermis. These mice exhibit some characteristics of dyskeratosis congenita, a human stem cell depletion syndrome caused by telomere dysfunction. The epidermis in conditional TRF2 null mice exhibited DNA damage response and apoptosis, which correlated with stem cell depletion. The stem cell population in conditional TRF2 null epidermis exhibited shorter telomeres than those in control mice. Squamous cell carcinomas induced in conditional TRF2 null mice developed with increased latency and slower growth due to reduced numbers of proliferating cells as the result of increased apoptosis. TRF2 null epidermal stem cells were found in both primary and metastatic tumors. Despite the low-grade phenotype of the conditional TRF2 null primary tumors, the number of metastatic lesions was similar to control cancers. Basal cells from TRF2 null tumors demonstrated extreme telomere shortening and dramatically increased numbers of telomeric signals by fluorescence in situ hybridization due to increased genomic instability and aneuploidy in these cancers. DNA damage response signals were detected at telomeres in TRF2 null tumor cells from these mice. The increased genomic instability in these tumors correlated with eightfold expansion of the transformed stem cell population compared with that in control cancers. We concluded that genomic instability resulting from loss of TRF2 expression provides biological advantages to the cancer stem cell population.