In Arabidopsis thaliana, lateral root (LR) formation is regulated by multiple auxin/indole-3-acetic acid (Aux/IAA)-AUXIN RESPONSE FACTOR (ARF) modules: (i) the IAA28-ARFs module regulates LR founder cell specification; (ii) the SOLITARY-ROOT (SLR)/IAA14-ARF7-ARF19 module regulates nuclear migration and asymmetric cell divisions of the LR founder cells for LR initiation; and (iii) the BODENLOS/IAA12-MONOPTEROS/ARF5 module also regulates LR initiation and organogenesis. The number of Aux/IAA-ARF modules involved in LR formation remains unknown. In this study, we isolated the shy2-101 mutant, a gain-of-function allele of short hypocotyl2/suppressor of hy2 (shy2)/iaa3 in the Columbia accession. We demonstrated that the shy2-101 mutation not only strongly inhibits LR primordium development and emergence but also significantly increases the number of LR initiation sites with the activation of LATERAL ORGAN BOUNDARIES-DOMAIN16/ASYMMETRIC LEAVES2-LIKE18, a target gene of the SLR/IAA14-ARF7-ARF19 module. Genetic analysis revealed that enhanced LR initiation in shy2-101 depended on the SLR/IAA14-ARF7-ARF19 module. We also showed that the shy2 roots contain higher levels of endogenous IAA. These observations indicate that the SHY2/IAA3-ARF-signalling module regulates not only LR primordium development and emergence after SLR/IAA14-ARF7-ARF19 module-dependent LR initiation but also inhibits LR initiation by affecting auxin homeostasis, suggesting that multiple Aux/IAA-ARF modules cooperatively regulate the developmental steps during LR formation.