We isolated two T-DNA insertion mutants of Arabidopsis thaliana GLUTATHIONE PEROXIDASE3 (ATGPX3) that exhibited a higher rate of water loss under drought stress, higher sensitivity to H(2)O(2) treatment during seed germination and seedling development, and enhanced production of H(2)O(2) in guard cells. By contrast, lines engineered to overexpress ATGPX3 were less sensitive to drought stress than the wild type and displayed less transpirational water loss, which resulted in higher leaf surface temperature. The atgpx3 mutation also disrupted abscisic acid (ABA) activation of calcium channels and the expression of ABA- and stress-responsive genes. ATGPX3 physically interacted with the 2C-type protein phosphatase ABA INSENSITIVE2 (ABI2) and, to a lesser extent, with ABI1. In addition, the redox states of both ATGPX3 and ABI2 were found to be regulated by H(2)O(2). The phosphatase activity of ABI2, measured in vitro, was reduced approximately fivefold by the addition of oxidized ATGPX3. The reduced form of ABI2 was converted to the oxidized form by the addition of oxidized ATGPX3 in vitro, which might mediate ABA and oxidative signaling. These results suggest that ATGPX3 might play dual and distinctive roles in H(2)O(2) homeostasis, acting as a general scavenger and specifically relaying the H(2)O(2) signal as an oxidative signal transducer in ABA and drought stress signaling.