The subtelomere, a telomere-adjacent chromosomal domain, contains species-specific homologous DNA sequences, in addition to various genes. However, the functions of subtelomeres, particularly subtelomeric homologous (SH) sequences, remain elusive. Here, we report the first comprehensive analyses of the cellular functions of SH sequences in the fission yeast, Schizosaccharomyces pombe. Complete removal of SH sequences from the genome revealed that they are dispensable for mitosis, meiosis and telomere length control. However, when telomeres are lost, SH sequences prevent deleterious inter-chromosomal end fusion by facilitating intra-chromosomal circularization. Surprisingly, SH-deleted cells sometimes survive telomere loss through inter-chromosomal end fusions via homologous loci such as LTRs, accompanied by centromere inactivation of either chromosome. Moreover, SH sequences function as a buffer region against the spreading of subtelomeric heterochromatin into the neighboring gene-rich regions. Furthermore, we found a nucleosome-free region at the subtelomeric border, which may be a second barrier that blocks heterochromatin spreading into the subtelomere-adjacent euchromatin. Thus, our results demonstrate multiple defense functions of subtelomeres in chromosome homeostasis and gene expression.