Germline pathogenic TERT variants are associated with short telomeres and an increased risk of developing myelodysplastic syndrome (MDS) among patients with a telomere biology disorder. We identified TERT rare variants in 41 of 1514 MDS patients (2.7%) without a clinical diagnosis of a telomere biology disorder who underwent allogeneic transplantation. Patients with a TERT rare variant had shorter telomere length (P < .001) and younger age at MDS diagnosis (52 vs 59 years, P = .03) than patients without a TERT rare variant. In multivariable models, TERT rare variants were associated with inferior overall survival (P = .034) driven by an increased incidence of nonrelapse mortality (NRM; P = .015). Death from a noninfectious pulmonary cause was more frequent among patients with a TERT rare variant. Most variants were missense substitutions and classified as variants of unknown significance. Therefore, we cloned all rare missense variants and quantified their impact on telomere elongation in a cell-based assay. We found that 90% of TERT rare variants had severe or intermediate impairment in their capacity to elongate telomeres. Using a homology model of human TERT bound to the shelterin protein TPP1, we inferred that TERT rare variants disrupt domain-specific functions, including catalysis, protein–RNA interactions, and recruitment to telomeres. Our results indicate that the contribution of TERT rare variants to MDS pathogenesis and NRM risk is underrecognized. Routine screening for TERT rare variants in MDS patients regardless of age or clinical suspicion may identify clinically inapparent telomere biology disorders and improve transplant outcomes through risk-adapted approaches.