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Background: Atractylodes chinensis (DC) Koidz., a dicotyledonous and hypogeal germination species, is an important medicinal plant because its rhizome is enriched in sesquiterpenes. The development and production of A. chinensis are negatively affected by drought stress, especially at the seedling stage. Understanding the molecular mechanism of A. chinensis drought stress response plays an important role in ensuring medicinal plant production and quality. In this study, A. chinensis seedlings were subjected to drought stress treatment for 0 (control), 3 (D3), and 9 days (D9). For the control, the sample was watered every two days and collected on the second morning after watering. The integration of physiological and transcriptomic analyses was carried out to investigate the effects of drought stress on A. chinensis seedlings and to reveal the molecular mechanism of its drought stress response. Results: The malondialdehyde, proline, soluble sugar, and crude protein contents and antioxidative enzyme (superoxide dismutase, peroxidase, and catalase) activity were significantly increased under drought stress compared with the control. Transcriptomic analysis indicated a total of 215,665 unigenes with an average length of 759.09 bp and an N50 of 1140 bp. A total of 29,449 differentially expressed genes (DEGs) were detected between the control and D3, and 14,538 DEGs were detected between the control and D9. Under drought stress, terpenoid backbone biosynthesis had the highest number of unigenes in the metabolism of terpenoids and polyketides. To identify candidate genes involved in the sesquiterpenoid and triterpenoid biosynthetic pathways, we observed 22 unigene-encoding enzymes in the terpenoid backbone biosynthetic pathway and 15 unigene-encoding enzymes in the sesquiterpenoid and triterpenoid biosynthetic pathways under drought stress. Conclusion: Our study provides transcriptome profiles and candidate genes involved in sesquiterpenoid and triterpenoid biosynthesis in A. chinensis in response to drought stress. Our results improve our understanding of how drought stress might affect sesquiterpenoid and triterpenoid biosynthetic pathways in A. chinensis. [ABSTRACT FROM AUTHOR]