Onion (Allium cepa L.) is an important vegetable crop widely grown for diverse culinary and nutraceutical properties. Being a shallow-rooted plant, it is prone to drought. In the present study, transcriptome sequencing of drought-tolerant (1656) and drought-sensitive (1627) onion genotypes was performed to elucidate the molecular basis of differential response to drought stress. A total of 123206 and 139252 transcripts (average transcript length: 690 bases) were generated after assembly for 1656 and 1627, respectively. Differential gene expression analyses revealed upregulation and downregulation of 1189 and 1180 genes, respectively, in 1656, whereas in 1627, upregulation and downregulation of 872 and 1292 genes, respectively, was observed. Genes encoding transcription factors, cytochrome P450, membrane transporters, and flavonoids, and those related to carbohydrate metabolism were found to exhibit a differential expression behavior in the tolerant and susceptible genotypes. The information generated can facilitate a better understanding of molecular mechanisms underlying drought response in onion.