Werner syndrome is a premature aging disease caused by loss of function mutations in the Werner syndrome protein (WRN) gene. WRN is a RecQ helicase that in contrast to every other member of this family of proteins possesses an exonuclease activity. The findings that cells lacking WRN activity display accelerated telomere shortening and WRN can be detected at chromosome ends suggest that this protein participates in some aspects of telomere metabolism. In this study we examined the impact of WRN on telomeric substrates with a 3' single-stranded overhang in vitro and show that WRN has sequence-specific exonuclease activity that removes several nucleotides inward with a periodical pattern from the 3' end of the telomeric overhang. This activity is strictly dependent on the presence of telomeric sequences in both the duplex DNA and 3' overhang DNA segment and is strongly inhibited by the telomeric factor POT1 but not TRF2. These data demonstrate that WRN processes telomeric DNA substrates with a 3' single-stranded overhang with high specificity and suggest that this protein could influence the configuration of telomere ends prior to the formation of a protective t-loop structure.