The woody resurrection plant Myrothamnus flabellifolia has remarkable tolerance to desiccation. Pyro-sequencing technology permitted us to analyze the transcriptome of M. flabellifolia during both dehydration and rehydration. We identified a total of 8287 and 8542 differentially transcribed genes during dehydration and rehydration treatments respectively. Approximately 295 transcription factors (TFs) and 484 protein kinases (PKs) were up- or down-regulated in response to desiccation stress. Among these, the transcript levels of 53 TFs and 91 PKs increased rapidly and peaked early during dehydration. These regulators transduce signal cascades of molecular pathways, including the up-regulation of ABA-dependent and independent drought stress pathways and the activation of protective mechanisms for coping with oxidative damage. Antioxidant systems are up-regulated, and the photosynthetic system is modified to reduce ROS generation. Secondary metabolism may participate in the desiccation tolerance of M. flabellifolia as indicated by increases in transcript abundance of genes involved in isopentenyl diphosphate biosynthesis. Up-regulation of genes encoding late embryogenesis abundant proteins and sucrose phosphate synthase is also associated with increased tolerance to desiccation. During rehydration, the transcriptome is also enriched in transcripts of genes encoding TFs and PKs, as well as genes involved in photosynthesis, and protein synthesis. The data reported here contribute comprehensive insights into the molecular mechanisms of desiccation tolerance in M. flabellifolia.