The Rab GTPases are important components of endocytic network in plant cells. Endocytosis participates in the cell's reaction to extracellular stimuli by desensitizing, down-regulating or recycling receptors and membrane proteins. Rab7 is a small GTP-binding protein involved in intracellular vesicle trafficking from late endosome to the vacuole. We have isolated Rab7 cDNA from Pennisetum glaucum, a relatively drought-stress tolerant food grain crop grown commonly in India, during cDNA-subtractive hybridization of dehydration-stress treated plants. The PgRab7 ORF, encoding 207 aminoacids, was over-expressed in E. coli. The recombinant PgRab7 protein showed GTP-binding and GTPase activity. Transcript expression of PgRab7 gene was differentially up-regulated by different environmental stimuli such as cold, dehydration and NaCl and also by a plant hormone IAA. Overexpression of PgRab7 gene enhanced tolerance to NaCl and mannitol in transgenic tobacco. Transgenic plants also had increased alkaline phosphatase (ALP) activity. These results show that PgRab7 is a potential candidate gene for developing both salinity and dehydration tolerance in planta.