Environmental stress poses a global threat to plant growth and reproduction, especially drought stress. Zinc finger proteins comprise a family of transcription factors that play essential roles in response to various abiotic stresses. Here, we found that ZAT18 (At3g53600), a nuclear C2H2 zinc finger protein, was transcriptionally induced by dehydration stress. Overexpression (OE) of ZAT18 in Arabidopsis improved drought tolerance while mutation of ZAT18 resulted in decreased plant tolerance to drought stress. ZAT18 was preferentially expressed in stems, siliques, and vegetative rosette leaves. Subcellular location results revealed that ZAT18 protein was predominantly localized in the nucleus. ZAT18 OE plants exhibited less leaf water loss, lower content of reactive oxygen species (ROS), higher leaf water content, and higher antioxidant enzyme activities after drought treatment when compared with the wild type (WT). RNA sequencing analysis showed that 423 and 561 genes were transcriptionally modulated by the ZAT18 transgene before and after drought treatment, respectively. Pathway enrichment analysis indicated that hormone metabolism, stress, and signaling were over-represented in ZAT18 OE lines. Several stress-responsive genes including COR47, ERD7, LEA6, and RAS1, and hormone signaling transduction-related genes including JAZ7 and PYL5 were identified as putative target genes of ZAT18. Taken together, ZAT18 functions as a positive regulator and plays a crucial role in the plant response to drought stress.