Plant annexins are members of a diverse, multigene protein family that has been associated with a variety of cellular processes and responses to abiotic stresses. GhAnn1, which encodes a putative annexin protein, was isolated from a cotton (Gossypium hirsutum L. acc 7235) cDNA library. Tissue-specific expression showed that GhAnn1 is expressed at differential levels in all tissues examined and strongly induced by various phytohormones and abiotic stress. In vivo and in vitro subcellular localization suggested that GhAnn1 is located in the plasma membrane. In response to drought and salt stress, transgenic cotton plants overexpressing GhAnn1 showed significantly higher germination rates, longer roots, and more vigorous growth than wild-type plants. In addition, plants overexpressing GhAnn1 had higher total chlorophyll content, lower lipid peroxidation levels, increased peroxidase activities, and higher levels of proline and soluble sugars, all of which contributed to increased salt and drought stress tolerance. However, transgenic cotton plants in which the expression of GhAnn1 was suppressed showed the opposite results compared to the overexpressing plants. These findings demonstrated that GhAnn1 plays an important role in the abiotic stress response, and that overexpression of GhAnn1 in transgenic cotton improves salt and drought tolerance.