Lateral root formation is an important developmental component of root systems in vascular plants. Several regulatory genes for lateral root formation have been identified from recent studies mainly using Arabidopsis thaliana. In this study, we isolated two dominant mutant alleles, crane-1 and crane-2, which are defective in lateral root formation in Arabidopsis. The crane mutants have dramatically reduced lateral root and auxin-induced lateral root formation, indicating that the crane mutations reduce auxin sensitivity. In addition, the crane mutants have pleiotropic phenotypes in the aerial shoots, including long hypocotyls when grown in the light, up-curled leaves and reduced fertility. The crane mutant phenotypes are caused by a gain-of-function mutation in domain II of IAA18, a member of the Aux/IAA transcriptional repressor family which is expressed in almost all organs. In roots, IAA18 promoter::GUS was expressed in the early stages of lateral root development. In the yeast two-hybrid system, IAA18 interacts with AUXIN RESPONSE FACTOR 7 (ARF7) and ARF19, transcriptional activators that positively regulate lateral root formation. Taken together, our results indicate that CRANE/IAA18 is involved in lateral root formation in Arabidopsis, and suggest that it negatively regulates the activity of ARF7 and ARF19 for lateral root formation.