Plant adaptive responses to osmotic stress are co-ordinated by restriction of growth and developmental processes and by molecular and physiological activities. The phytohormone ABA is the primary regulator that induces and responds to osmotic stress, and its sensitivity markedly influences osmotic stress tolerance levels. Several E3 ubiquitin ligases act as positive or negative regulators of ABA, thereby mediating sensitivity to osmotic stress in higher plants. Here, we report that the C3H2C3-type RING finger E3 ligase, CaAIP1, regulates osmotic stress responses via ABA-mediated signaling. CaAIP1 contains a RING finger motif, which functions during attachment of ubiquitins to the target proteins. Expression of CaAIP1 was induced by ABA, drought and NaCl treatments, suggesting its role in the osmotic stress response. CaAIP1-silenced pepper plants displayed a drought-sensitive phenotype characterized by a high level of transpirational water loss in the drought-treated leaves. CaAIP1-overexpressing (OX) plants exhibited increased sensitivity to ABA, but an NaCl- and mannitol-tolerant phenotype during seed germination and seedling growth. CaAIP1-OX plants further displayed enhanced tolerance to drought stress, characterized by low levels of transpirational water loss via increased stomatal closure and leaf temperature. Our data indicate that CaAIP1 is a positive regulator of the osmotic stress tolerance mechanism.