A water-deficit stress (WDS)-responsive transcription factor-encoding gene isolated from drought-tolerant Oryza sativa L. cv. N-22 corresponding to the AP2/ERF family and named AP2/ERF-N22, when overexpressed in Arabidopsis under a constitutive promoter, showed improved turgor and less wilting as compared to wild-type plants under WDS. However, the transgenic plants showed phenotypic aberrations such as stunted growth, smaller silique size, reduced number of seeds and delayed flowering. Physio-biochemical analysis of T2 plants revealed higher relative water content, membrane stability index, capacity to scavenge reactive oxygen species and increased levels of proline, carotenoids, wax and abscisic acid content under WDS. Higher abscisic acid content resulted in reduced stomatal conductance and transpiration rate. The reduced chlorophyll content also leads to reduced photosynthetic rate and efficiency. Thus, this gene may be exploited for enhanced drought tolerance in crop plants.