Terminal deletions of Drosophila chromosomes can be stably protected from end-to-end fusion despite the absence of all telomere-associated sequences. The sequence-independent protection of these telomeres suggests that recognition of chromosome ends might contribute to the epigenetic protection of telomeres. In mammals, Ataxia Telangiectasia Mutated (ATM) is activated by DNA damage and acts through an unknown, telomerase-independent mechanism to regulate telomere length and protection. We demonstrate that the Drosophila homolog of ATM is encoded by the telomere fusion (tefu) gene. In the absence of ATM, telomere fusions occur even though telomere-specific Het-A sequences are still present. High levels of spontaneous apoptosis are observed in ATM-deficient tissues, indicating that telomere dysfunction induces apoptosis in Drosophila. Suppression of this apoptosis by p53 mutations suggests that loss of ATM activates apoptosis through a DNA damage-response mechanism. Loss of ATM reduces the levels of heterochromatin protein 1 (HP1) at telomeres and suppresses telomere position effect. We propose that recognition of chromosome ends by ATM prevents telomere fusion and apoptosis by recruiting chromatin-modifying complexes to telomeres.