Loss of the histone H3.3‐specific chaperone component ATRX or its partner DAXX frequently occurs in human cancers that employ alternative lengthening of telomeres (ALT) for chromosomal end protection, yet the underlying mechanism remains unclear. Here, we report that ATRX/DAXX does not serve as an immediate repressive switch for ALT. Instead, ATRX or DAXX depletion gradually induces telomere DNA replication dysfunction that activates not only homology‐directed DNA repair responses but also cell cycle checkpoint control. Mechanistically, we demonstrate that this process is contingent on ATRX/DAXX histone chaperone function, independently of telomere length. Combined ATAC‐seq and telomere chromatin immunoprecipitation studies reveal that ATRX loss provokes progressive telomere decondensation that culminates in the inception of persistent telomere replication dysfunction. We further show that endogenous telomerase activity cannot overcome telomere dysfunction induced by ATRX loss, leaving telomere repair‐based ALT as the only viable mechanism for telomere maintenance during immortalization. Together, these findings implicate ALT activation as an adaptive response to ATRX/DAXX loss‐induced telomere replication dysfunction. Synopsis Alternative lengthening of telomeres (ALT) in human cancers is frequently associated with loss of the histone H3.3 chaperone ATRX or its cofactor DAXX. This study shows that ATRX/DAXX do not function as immediate repressor of ALT, but that ALT is rather an an adaptive response to ATRX depletion‐induced telomere replication dysfunction. ATRX loss induces telomere replication dysfunction irrespective of endogenous telomerase activity. ATRX‐DAXX histone H3.3 chaperone activity is required for telomere maintenance. ATRX depletion progressively induces chromatin de‐compaction at telomeres. ATRX loss dictates the telomere maintenance program during ATRX mutant cell immortalization. Telomere maintenance by ALT emerges as an adaptive response to progressive telomere decompaction in the absence of the H3.3 chaperone ATRX/DAXX, rather than being immediately de‐repressed upon ATRX depletion.