SUMMARYSqualene epoxidase enzymes catalyse the conversion of squalene into 2,3-oxidosqualene, the precursor of cyclic triterpenoids. Here we report that the Arabidopsis drought hypersensitive/squalene epoxidase 1-5 (dry2/ sqe1-5) mutant, identified by its extreme hypersensitivity to drought stress, has altered stomatal responses and root defects because of a point mutation in the SQUALENE EPOXIDASE 1 (SQE1) gene. GC-MS analysis indicated that the dry2/sqe1-5 mutant has altered sterol composition in roots but wild-type sterol composition in shoots, indicating an essential role for SQE1 in root sterol biosynthesis. Importantly, the stomatal and root defects of the dry2/sqe1-5 mutant are associated with altered production of reactive oxygen species. As RHD2 NADPH oxidase is de-localized in dry2/sqe1-5 root hairs, we propose that sterols play an essential role in the localization of NADPH oxidases required for regulation of reactive oxygen species, stomatal responses and drought tolerance.