It has been over 50 years since the first prolyl aminopeptidase gene was identified in Escherichia coli (EC 3.4.11.5). However, up to now, few prolyl aminopeptidases have been reported to regulate osmotic stress tolerance, especially in plant. In this study, we focused on characterization of the biological functions of the Arabidopsis prolyl aminopeptidase AtPAP1 (At2g14260), which positively regulated plant tolerance to salt and drought stresses. Protein sequence alignment revealed that AtPAP1 was evolutionarily conserved among different plant species, and the smaller molecular weight and phylogenetic tree indicated that AtPAP1 belonged to the S33.001 subfamily. By using quantitative real-time PCR assays, we demonstrated that expression of the AtPAP1 gene was rapidly induced by salt and drought stresses. We also found that knockout of the AtPAP1 gene decreased, while AtPAP1 overexpression enhanced plant tolerance to salt and drought stresses. Measurements of the proline contents and the prolyl aminopeptidase activity suggested that the transgenic plants accumulated more free proline and exhibited higher prolyl aminopeptidase activity than the wild type or knockout plants under control conditions, as well as salt and drought stresses. Furthermore, through the GUS activity analysis, we also demonstrated that the AtPAP1 promoter is stress inducible and tissue specific. The AtPAP1-GFP fusion protein was found to localize in the cytoplasm of the onion epidermal cells. In conclusion, we showed that the ArabidopsisAtPAP1 gene could positively regulate plant tolerance to salt and drought stress, maybe by acting as a prolyl aminopeptidase and thereby increasing the concentration of free proline in plant cells.