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G-quadruplexes are four-stranded nucleic acid structures that are formed by guanine rich sequences. They have been implicated to interfere with telomere maintenance, but their effects are not well understood at a molecular level. Here, we treat human cells with the G-quadruplex stabilizer and anti-cancer drug-candidate pyridostatin and characterize its effects on telomere replication and maintenance. We demonstrate that pyridostatin interferes with lagging strand DNA synthesis during semiconservative replication of telomeres. Pyridostatin impedes replication fork progression and triggers telomere cleavage events involving the Flap-endonuclease FEN1 and the nuclease-helicase DNA2. Telomeric protein composition analysis reveals pyridostatin-induced association of LIG3 with telomeres. This enzyme is involved in repair of DNA double strand breaks by microhomology-mediated end joining (MMEJ). Depletion of MMEJ-factors or their chemical inhibition enhances telomere loss events in pyridostatin-treated cells. Altogether, our data reveal a three-step mechanism in which pyridostatin-stabilized G-quadruplexes inhibit replication of lagging strand telomeres, which is overcome by FEN1/DNA2-mediated DNA cleavage and MMEJ-mediated DNA repair. The synthetic effects of pyridostatin and MMEJ inhibition on telomere maintenance may become exploitable in future anti-cancer therapies.