Telomere shortening limits the regenerative capacity of primary cells in vitro by inducing cellular senescence characterized by a permanent growth arrest of cells with critically short telomeres. To test whether this in vitro model of cellular senescence applies to impaired organ regeneration induced by telomere shortening in vivo, we monitored liver regeneration after partial hepatectomy in telomerase-deficient mice. Our study shows that telomere shortening is heterogeneous at the cellular level and inhibits a subpopulation of cells with critically short telomeres from entering the cell cycle. This subpopulation of cells with impaired proliferative capacity shows senescence-associated β-galactosidase activity, while organ regeneration is accomplished by cells with sufficient telomere reserves that are capable of additional rounds of cell division. This study provides experimental evidence for the existence of an in vivo process of cellular senescence induced by critical telomere shortening that has functional impact on organ regeneration.