The homeodomain leucine zipper (HD-Zip) genes encode transcription factors that have diverse functions in plant development and have often been implicated in stress adaptation. The HD-Zip genes are the most abundant group of homeobox (HB) genes in plants and do not occur in other eukaryotes. This paper describes the complete annotation of the HD-Zip families I, II and III from rice and compares these gene families with Arabidopsis in a phylogeny reconstruction. Orthologous pairs of rice and Arabidopsis HD-Zip genes were predicted based on neighbour joining and maximum parsimony (MP) trees with support of conserved intron-exon organization. Additionally, a number of HD-Zip genes appeared to be unique to rice. Searching of EST and cDNA databases and expression analysis using RT-PCR showed that 30 out of 31 predicted rice HD-Zip genes are expressed. Most HD-Zip genes were broadly expressed in mature plants and seedlings, but others showed more organ specific patterns. Like in Arabidopsis and other dicots, a subset of the rice HD-Zip I and II genes was found to be regulated by drought stress. We identified both drought-induced and drought-repressed HD-Zip genes and demonstrate that these genes are differentially regulated in drought-sensitive versus drought-tolerant rice cultivars. The drought-repressed HD-Zip family I gene, Oshox4, was selected for promoter-GUS analysis, showing that drought-responsiveness of Oshox4 is controlled by the promoter and that Oshox4 expression is predominantly vascular-specific. Loss-of-function analysis of Oshox4 revealed no specific phenotype, but overexpression analysis suggested a role for Oshox4 in elongation and maturation processes.