A novel pathogen-induced gene encoding the RAV (Related to ABI3/VP1) transcription factor, CARAV1, was isolated from pepper leaves infected with Xanthomonas campestris pv. vesicatoria. CARAV1 contains two distinct DNA-binding domains AP2 and B3 uniquely found in higher plants. Transient expression analysis of the smGFP:CARAV1 fusion construct in Arabidopsis protoplasts and pepper epidermal cells revealed the CARAV1 protein to be localized in the nucleus. The N-terminal region of CARAV1 fused to the GAL4 DNA-binding domain was required to activate transcription of reporter genes in yeast. In yeast one-hybrid, the recognition of CAACA and CACCTG motifs also were essential for the CARAV1 protein to bind to a specific target gene and activate the reporter gene. The expression of the CARAV1 gene was strongly induced early in pepper leaves during the pathogen infection, abiotic elicitors and environmental stresses. CARAV1 transcripts were localized in the phloem cells of leaf tissues during pathogen infection and ethylene treatment. Ectopic expression of the CARAV1 gene in transgenic Arabidopsis plants induced some PR genes and enhanced resistance against infection by Pseudomonas syringae pv. tomato DC3000 and osmotic stresses by high salinity and dehydration. The CARAV1 promoter activation was induced by P. syringae pv. tabaci, salicylic acid and abscisic acid. These data suggest that pathogen- and abiotic stress-inducible CARAV1 functions as a transcriptional activator triggering resistance to bacterial infection and tolerance to osmotic stresses.