Diacyglycerol (DAG) is an important class of cellular lipid messengers, but its function in plants remains elusive. Here, we show that knockout of the Arabidopsis thaliana nonspecific phospholipase C (NPC4) results in a decrease in DAG levels and compromises plant response to abscisic acid (ABA) and hyperosmotic stresses. NPC4 hydrolyzes various phospholipids in a calcium-independent manner, producing DAG and a phosphorylated head group. NPC4 knockout (KO) plants display decreased ABA sensitivity in seed germination, root elongation, and stomatal movement and had decreased tolerance to high salinity and water deficiency. Overexpression of NPC4 renders plants more sensitive to ABA and more tolerant to hyperosmotic stress than wild-type plants. Addition of a short-chain DAG or a short-chain phosphatidic acid (PA) restores the ABA response of NPC4-KO to that of the wild type, but the addition of DAG together with a DAG kinase inhibitor does not result in a wild-type phenotype. These data suggest that NPC4-produced DAG is converted to PA and that NPC4 and its derived lipids positively modulate ABA response and promote plant tolerance to drought and salt stresses.