The cultivation of rice (Oryza sativa L.), a major food crop, requires ample water (30 % of the fresh water available worldwide), and its productivity is greatly affected by drought, the most significant environmental factor. Much research has focussed on identifying quantitative trait loci, stress-regulated genes and transcription factors that will contribute towards the development of climate-resilient/tolerant crop plants in general and rice in particular. The transcription factor DREB1A, identified from the model plant Arabidopsis thaliana, has been reported to enhance stress tolerance against drought stress. We developed transgenic rice plants with AtDREB1A in the background of indica rice cultivar Samba Mahsuri through Agrobacterium-mediated transformation. The AtDREB1A gene was stably inherited and expressed in T1 and T2 plants and in subsequent generations, as indicated by the results of PCR, Southern blot and RT-PCR analyses. Expression of AtDREB1A was induced by drought stress in transgenic rice lines, which were highly tolerant to severe water deficit stress in both the vegetative and reproductive stages without affecting their morphological or agronomic traits. The physiological studies revealed that the expression of AtDREB1A was associated with an increased accumulation of the osmotic substance proline, maintenance of chlorophyll, increased relative water content and decreased ion leakage under drought stress. Most of the homozygous lines were highly tolerant to drought stress and showed significantly a higher grain yield and spikelet fertility relative to the nontransgenic control plants under both stressed and unstressed conditions. The improvement in drought stress tolerance in combination with agronomic traits is very essential in high premium indica rice cultivars, such as Samba Mahsuri, so that farmers can benefit in times of seasonal droughts and water scarcity.