Telomere dynamics are linked to aging hallmarks, and age-associated telomere loss fuels the development of epithelial cancers. In Apc-mutant mice, the onset of DNA damage associated with telomere dysfunction has been shown to accelerate adenoma initiation via unknown mechanisms. Here, we observed that Apc-mutant mice engineered to experience telomere dysfunction show accelerated adenoma formation resulting from augmented cell competition and clonal expansion. Mechanistically, telomere dysfunction induces the repression of EZH2, resulting in the derepression of Wnt antagonists, which causes the differentiation of adjacent stem cells and a relative growth advantage to Apc-deficient telomere dysfunctional cells. Correspondingly, in this mouse model, GSK3β inhibition countered the actions of Wnt antagonists on intestinal stem cells, resulting in impaired adenoma formation of telomere dysfunctional Apc-mutant cells. Thus, telomere dysfunction contributes to cancer initiation through altered stem cell dynamics, identifying an interception strategy for human APC-mutant cancers with shortened telomeres.