We have isolated two Arabidopsis thaliana genes, AtHAL3a and AtHAL3b, showing homology with HAL3, a yeast protein which regulates the cell cycle and tolerance to salt stress through inhibition of the PPZ1 type-1 protein phosphatase. Expression of AtHAL3a in yeast hal3 mutants partially complements their LiCl sensitivity, suggesting possible conserved functions between both proteins. AtHAL3a and AtHAL3b are induced by salt stress and AtHAL3a is the most expressed in non-stressed plants, particularly in seeds. In situ hybridization demonstrates enrichment of AtHAL3a mRNA in seed embryos and in the vascular phloem of different plant tissues. AtHAL3 proteins show striking homology with a group of proteins found in fungi, plants and animals and some homology with a large family of prokaryotic flavoproteins. Recombinant AtHAL3a protein purified from Escherichia coli was yellow because it contained a non-covalently bound chromophore revealed as flavin mononucleotide. Trans- genic Arabidopsis plants, with gain of AtHAL3a function, show altered growth rates and improved tolerance to salt and osmotic stress.