Drought is the major environmental stress that limits cotton (Gossypium hirsutum L.) production worldwide. LOS5/ABA3 (LOS5) encodes a molybdenum co-factor and is essential for activating aldehyde oxidase, which is involved in abscisic acid (ABA) biosynthesis. In this study, a LOS5 cDNA of Arabidopsis thaliana was overexpressed in cotton cultivar Zhongmiansuo35 (Z35) by Agrobacterium tumefaciens-mediated transformation. The transformation and overexpression of AtLOS5 were assessed by PCR and RT-PCR analysis. Detached shoots of transgenic cotton showed slower transpirational water loss than those of Z35. When pot-grown 6-week-old seedlings were withheld from watering for 3 d, transgenic cotton accumulated 25% more endogenous ABA and about 20% more proline than Z35 plants. The transgenic plants also showed increased expression of some drought-responding genes such as P5CS and RD22, and enhanced activity of antioxidant enzymes such as superoxide dismutase, peroxidase, and ascorbate peroxidase. Their membrane integrity was considerably improved under water stress, as indicated by reduced malondialdehyde content and electrolyte leakage relative to control plants. When the pot-grown plants were subjected to deficit irrigation for 8 weeks (watering to 50% of field capacity), transgenic plants showed a 13% increase in fresh weight than the wild type under the same drought condition. These results suggest that the AtLOS5 transgenic cotton plants acquired a better drought tolerance through enhanced ABA production and ABA-induced physiological regulations.