A fungal gene encoding a transcription factor is expressed from its own promoter in Arabidopsis phloem and improves drought tolerance by reducing transpiration and increasing osmotic potential. Horizontal gene transfer from unrelated organisms has occurred in the course of plant evolution, suggesting that some foreign genes may be useful to plants. The CtHSR1 gene, previously isolated from the halophytic yeast Candida tropicalis, encodes a heat-shock transcription factor-related protein. CtHSR1, with expression driven by its own promoter or by the Arabidopsis UBQ10 promoter, was introduced into the model plant Arabidopsis thaliana by Agrobacterium tumefaciens-mediated transformation and the resulting transgenic plants were more tolerant to drought than controls. Fusions of the CtHSR1 promoter with β-glucuronidase reporter gene indicated that this fungal promoter drives expression to phloem tissues. A chimera of CtHSR1 and green fluorescence protein is localized at the cell nucleus. The physiological mechanism of drought tolerance in transgenic plants is based on reduced transpiration (which correlates with decreased opening of stomata and increased levels of jasmonic acid) and increased osmotic potential (which correlates with increased proline accumulation). Transcriptomic analysis indicates that the CtHSR1 transgenic plants overexpressed a hundred of genes, including many relevant to stress defense such as LOX4 (involved in jasmonic acid synthesis) and P5CS1 (involved in proline biosynthesis). The promoters of the induced genes were enriched in upstream activating sequences for water stress induction. These results demonstrate that genes from unrelated organisms can have functional expression in plants from its own promoter and expand the possibilities of useful transgenes for plant biotechnology.