Drought causes substantial reductions in crop yields worldwide. Therefore, we set out to identify new chemical and genetic factors that regulate drought resistance in Arabidopsis thaliana. Karrikins (KARs) are a class of butenolide compounds found in smoke that promote seed germination, and have been reported to improve seedling vigor under stressful growth conditions. Here, we discovered that mutations in KARRIKIN INSENSITIVE2 (KAI2), encoding the proposed karrikin receptor, result in hypersensitivity to water deprivation. We performed transcriptomic, physiological and biochemical analyses of kai2 plants to understand the basis for KAI2-regulated drought resistance. We found that kai2 mutants have increased rates of water loss and drought-induced cell membrane damage, enlarged stomatal apertures, and higher cuticular permeability. In addition, kai2 plants have reduced anthocyanin biosynthesis during drought, and are hyposensitive to abscisic acid (ABA) in stomatal closure and cotyledon opening assays. We identified genes that are likely associated with the observed physiological and biochemical changes through a genome-wide transcriptome analysis of kai2 under both well-watered and dehydration conditions. These data provide evidence for crosstalk between ABA- and KAI2-dependent signaling pathways in regulating plant responses to drought. A comparison of the strigolactone receptor mutant d14 (DWARF14) to kai2 indicated that strigolactones also contributes to plant drought adaptation, although not by affecting cuticle development. Our findings suggest that chemical or genetic manipulation of KAI2 and D14 signaling may provide novel ways to improve drought resistance.