TERRAs are long non-coding RNAs generated from the telomeres. Lack of TERRA knockout models has hampered understanding TERRAs' functions. We recently identified chromosome 20q as one of the main origins of human TERRAs, allowing us to generate the first 20q-TERRA knockout models and to demonstrate that TERRAs are essential for telomere length maintenance and protection. Here, we use ALT 20q-TERRA knockout cells to address a direct role of TERRAs in telomeric heterochromatin formation. We find that 20q-TERRAs are essential for the establishment of H3K9me3, H4K20me3, and H3K27me3 heterochromatin marks at telomeres. At the mechanistic level, we find that TERRAs bind to PRC2, responsible for catalyzing H3K27 tri-methylation, and that its localization to telomeres is TERRA-dependent. We further demonstrate that PRC2-dependent H3K27me3 at telomeres is required for the establishment of H3K9me3, H4K20me3, and HP1 binding at telomeres. Together, these findings demonstrate an important role for TERRAs in telomeric heterochromatin assembly.