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Dehydrins (<i>DHNs</i>), as a sub-family of group two late embryogenesis-abundant (LEA) proteins, have attracted considerable interest owing to their functions in enhancing abiotic stress tolerance in plants. Our previous study showed that the expression of <i>CaDHN5</i> (a dehydrin gene from pepper) is strongly induced by salt and osmotic stresses, but its function was not clear. To understand the function of <i>CaDHN5</i> in the abiotic stress responses, we produced pepper (<i>Capsicum annuum</i> L.) plants, in which <i>CaDHN5</i> expression was down-regulated using VIGS (Virus-induced Gene Silencing), and transgenic <i>Arabidopsis</i> plants overexpressing <i>CaDHN5</i>. We found that knock-down of <i>CaDHN5</i> suppressed the expression of manganese superoxide dismutase <i>(MnSOD</i>) and peroxidase (<i>POD</i>) genes. These changes caused more reactive oxygen species accumulation in the VIGS lines than control pepper plants under stress conditions. <i>CaDHN5</i>-overexpressing plants exhibited enhanced tolerance to salt and osmotic stresses as compared to the wild type and also showed increased expression of salt and osmotic stress-related genes. Interestingly, our results showed that many salt-related genes were upregulated in our transgenic <i>Arabidopsis</i> lines under salt or osmotic stress. Taken together, our results suggest that <i>CaDHN5</i> functions as a positive regulator in the salt and osmotic stress signaling pathways.