A goal of modern agriculture is to improve plant drought tolerance and production per amount of water used, referred to as water use efficiency (WUE). Although stomatal density has been linked to WUE, the causal molecular mechanisms have yet to be determined. Arabidopsis thaliana GT-2 LIKE 1 (GTL1) loss-of-function mutations result in increased water deficit tolerance and higher integrated WUE by reducing daytime transpiration without a demonstrable reduction in biomass accumulation. gtl1 plants had higher instantaneous WUE that was attributable to ~25% lower transpiration and stomatal conductance but equivalent CO(2) assimilation. Lower transpiration was associated with higher STOMATAL DENSITY AND DISTRIBUTION1 (SDD1) expression and an ~25% reduction in abaxial stomatal density. GTL1 expression occurred in abaxial epidermal cells where the protein was localized to the nucleus, and its expression was downregulated by water stress. Chromatin immunoprecipitation analysis indicated that GTL1 interacts with a region of the SDD1 promoter that contains a GT3 box. An electrophoretic mobility shift assay was used to determine that the GT3 box is necessary for the interaction between GTL1 and the SDD1 promoter. These results establish that GTL1 negatively regulates WUE by modulating stomatal density via transrepression of SDD1.