Type III polyketide synthases (PKSs) catalyze the biosynthesis of various medicinally important secondary metabolites in plants, but their role in growth and stress response is unclear. Here, we overexpressed quinolone synthase (QNS) from bael in tobacco. QNS-overexpressing plants showed an overall increase in growth, photosynthetic efficiency and chlorophyll content compared to wild type plants. Second-generation (T2) transgenic plants grew to maturity, flowered early and set viable seeds under favorable conditions without yield penalty. An increased accumulation of flavonoids, phenols and alkaloids was associated with higher tolerance to drought and salinity stress in transgenic plants. Thus, bael QNS seems to function as a positive regulator of plant growth and stress response, and could be potentially used for engineering plants tolerant to abiotic stress.