More than 20 genes in the Arabidopsis genome encode proteins similar to phosphatases that act on the carboxyl-terminal domain (CTD) of RNA polymerase II. One of these CTD-phosphatase-like (CPL) proteins, CPL2, dephosphorylates CTD-Ser5-PO4 in an intact RNA polymerase II complex and contains a double-stranded (ds)-RNA-binding motif (DRM). Although the dsRNA-binding activity of CPL2 DRM has not been shown to date, T-DNA insertion mutants that express CPL2 variants lacking either a part of DRM (cpl2-1) or the entire DRM (cpl2-2) exhibited leaf expansion defects, early flowering, low fertility, and increased salt sensitivity. cpl2 mutant plants produced shorter hypocotyls than wild-type plants in the light, but were indistinguishable from wild type in the dark. CPL2 was expressed in shoot and root meristems and vasculatures, expanding rosette leaves, and floral organs suggesting a focal role for growth. Microarray and RT-PCR analyses revealed that basal levels of several auxin-responsive transcripts were reduced in cpl2. On the other hand, the levels of endogenous auxin and its conjugates were similar in wild type and cpl2. Overexpression of ARF5 but not all activator ARF transcription factors restored the auxin-responsive DR5-GUS reporter gene expression and the leaf expansion of cpl2 mutant plants but not early flowering phenotype. These results establish CPL2 as a multifunctional regulator that modulates plant growth, stress, and auxin responses.