The NAC (NAM, ATAF and CUC) superfamily is one of the largest plant-specific transcription factor families. NAC transcription factors always play important roles in response to various abiotic stresses. A NAC transcription factor gene AaNAC1 containing a complete open reading frame (ORF) of 864 bp was cloned from Artemisia annua. The expression of AaNAC1 could be induced by dehydration, cold, salicylic acid (SA) and methyl jasmonate (MJ), suggesting that it might be a key regulator of stress signaling pathways in A. annua. AaNAC1 was shown to be localized to the nuclei by transforming tobacco leaf epidermal cells. When AaNAC1 was overexpressed in A. annua, the content of artemisinin and dihydroartemisinic acid was increased by 79% and 150%, respectively. The expression levels of artemisinin biosynthetic pathway genes, i.e. amorpha-4,11-diene synthase (ADS), artemisinic aldehyde Δ11(13) reductase (DBR2) and aldehyde dehydrogenase 1 (ALDH1), were increased. Dual luciferase (dual-LUC) assays showed that AaNAC1 could activate the transcription of ADS in vivo. The transgenic A. annua exhibited increased tolerance to drought and resistance to Botrytis cinerea. When AaNAC1 was overexpressed in Arabidopsis, the transgenic Arabidopsis were markedly more tolerant to drought. The transgenic Arabidopsis showed increased resistance to B. cinerea. These results indicate that AaNAC1 can potentially be used in transgenic breeding for improving the content of artemisinin and drought tolerance in A. annua.