Mammalian telomeres repress DNA-damage activation at natural chromosome ends by recruiting specific inhibitors of the DNA-damage machinery that form a protective complex termed shelterin. Within this complex, TRF2 (also known as TERF2) has a crucial role in end protection through the suppression of ATM activation and the formation of end-to-end chromosome fusions(1,2). Here we address the molecular properties of TRF2 that are both necessary and sufficient to protect chromosome ends in mouse embryonic fibroblasts. Our data support a two-step mechanism for TRF2-mediated end protection. First, the dimerization domain of TRF2 is required to inhibit ATM activation, the key initial step involved in the activation of a DNA-damage response (DDR). Next, TRF2 independently suppresses the propagation of DNA-damage signalling downstream of ATM activation. This novel modulation of the DDR at telomeres occurs at the level of the E3 ubiquitin ligase RNF168 (ref. 3). Inhibition of RNF168 at telomeres involves the deubiquitinating enzyme BRCC3 and the ubiquitin ligase UBR5, and is sufficient to suppress chromosome end-to-end fusions. This two-step mechanism for TRF2-mediated end protection helps to explain the apparent paradox of frequent localization of DDR proteins at functional telomeres without concurrent induction of detrimental DNA-repair activities.