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Changes in root system architecture are vital for plant adaptation to drought stress, yet the underlying molecular mechanisms of this process remain largely elusive. Here, FUSCA3 (FUS3), a B3 domain transcription factor isolated from Populus euphratica, was found to be an important gene of regulating lateral root (LR) development under drought stress. The expression of PeFUS3 was strongly induced by ABA and dehydration treatments. Overexpressing PeFUS3 in poplar 84 K (P. alba × P. glandulosa) positively regulated LR growth and enhanced drought tolerance, while the knockout lines, generated by the CRISPR/Cas9 system, displayed repressed LR growth and weakened drought tolerance. Further investigation demonstrated that PeFUS3 activated the expression of PIN2, PIN6a and AUX1, which were key genes involved in auxin transport, suggesting PeFUS3 modulated LR development under drought stress through auxin signalling. Moreover, PeFUS3 directly upregulated PePYL3 expression, and overexpressing PePYL3 poplar lines exhibited significantly increased drought resistance. In addition, PeABF2, an ABA responsive transcription factor, interacted with PeFUS3 and activated its transcription, indicating PeFUS3 was involved in ABA signalling pathway. Taken together, PeFUS3 is a key regulator, maintaining root growth of poplar by modulating the crosstalk of auxin and ABA signalling under drought stress. Summary statement: PeFUS3, a B3 domain transcription factor, promotes lateral root (LR) development under drought stress via modulating the crosstalk of auxin and ABA signalling. These findings unravel a novel molecular mechanism of balancing root growth and drought resistance under drought stress in Populus. [ABSTRACT FROM AUTHOR]