About one-third of the world's rice area is in rain-fed lowlands and most are prone to water shortage. The identification of genes imparting tolerance to drought in the model cereal plant, rice, is an attractive strategy to engineer improved drought tolerance not only rice but other cereals as well. It is demonstrated that RNAi-mediated disruption of a rice farnesyltransferase/squalene synthase (SQS) by maize squalene synthase improves drought tolerance at both the vegetative and reproductive stages. Twenty-day-old seedlings of wild type (Nipponbare) and seven independent events of transgenic RNAi lines showed no difference in morphology. When subjected to water stress for a period of 32 d under growth chamber conditions, transgenic positives showed delayed wilting, conserved more soil water, and improved recovery. When five independent events along with wild-type plants were subjected to drought at the reproductive stage under greenhouse conditions, the transgenic plants lost water more slowly compared with the wild type, through reduced stomatal conductance and the retention of high leaf relative water content (RWC). After 28 d of slow progressive soil drying, transgenic plants recovered better and flowered earlier than wild-type plants. The yield of water-stressed transgenic positive plants ranged from 14-39% higher than wild-type plants. When grown in plates with Yoshida's nutrient solution with 1.2% agar, transgenic positives from three independent events showed increased root length and an enhanced number of lateral roots. The RNAi-mediated inactivation produced reduced stomatal conductance and subsequent drought tolerance.