Telomeric repeat-containing RNA (TERRA) has been identified as a telomere-associated regulator of chromosome end protection. Here, we report that TERRA can also be found in extracellular fractions that stimulate innate immune signaling. We identified extracellular forms of TERRA in mouse tumor and embryonic brain tissue, as well as in human tissue culture cell lines using RNA in situ hybridization. RNA-seq analyses revealed TERRA to be among the most highly represented transcripts in extracellular fractions derived from both normal and cancer patient blood plasma. Cell-free TERRA (cfTERRA) could be isolated from the exosome fractions derived from human lymphoblastoid cell line (LCL) culture media. cfTERRA is a shorter form (∼200 nt) of cellular TERRA and copurifies with CD63- and CD83-positive exosome vesicles that could be visualized by cyro-electron microscopy. These fractions were also enriched for histone proteins that physically associate with TERRA in extracellular ChIP assays. Incubation of cfTERRA-containing exosomes with peripheral blood mononuclear cells stimulated transcription of several inflammatory cytokine genes, including TNFα, IL6, and C-X-C chemokine 10 (CXCL10) Exosomes engineered with elevated TERRA or liposomes with synthetic TERRA further stimulated inflammatory cytokines, suggesting that exosome-associated TERRA augments innate immune signaling. These findings imply a previously unidentified extrinsic function for TERRA and a mechanism of communication between telomeres and innate immune signals in tissue and tumor microenvironments.