Terpenoids serve as both constitutive and inducible defense chemicals in many plant species, and volatile terpenes participate in plant a indirect defense by attracting natural enemies of the herbivores. The rice (Oryza sativa L.) genome contains about 50 genes encoding putative terpene synthases (TPSs). Here we report that two of the rice sesquiterpene synthase genes, OsTPS3 and OsTPS13, encode (E)-beta-caryophyllene synthase and (E,E)-farnesol synthase, respectively. In vitro, the recombinant protein of OsTPS3 catalyzed formation of (E)-beta-caryophyllene and several other sesquiterpenes, including beta-elemene and alpha-humulene, all being components of inducible volatiles of rice plants. The transcript levels of OsTPS3 exhibit a circadian rhythm of fluctuation, and its expression was also greatly induced by methyl jasmonate (MeJA). In addition, expression of OsTPS3 in transgenic plants of Arabidopsis thaliana resulted in emitting high quantities of OsTPS3 products. We also overexpressed OsTPS3 in rice plants which then produced more (E)-beta-caryophyllene after MeJA treatment. Finally, we found that the MeJA-treated transgenic rice plants attracted more parasitoid wasps of Anagrus nilaparvatae than the wild-type. These results demonstrate that OsTPS3, an enzyme catalyzing the formation of volatile sesquiterpenes, plays a role in indirect defense of rice plants.