Abstract: The present invention is directed to a method of producing a cereal plant cell or protoplast useful for regeneration of a water stress or salt stress tolerant cereal plant by transforming the cereal plant cell or protoplast with a nucleic acid encoding a late embryogenesis abundant protein. A transgenic cereal plant or cereal plant cell or protoplast transformed with a nucleic acid encoding a late embryogenesis abundant protein is also provided. An LEA protein gene, HVA1, from barley (Hordeum vulgare L.) was transformed into rice (Oryza sativa L.) plants. The resulting transgenic rice plants accumulate the HVA1 protein in both leaves and roots. Transgenic rice plants showed significantly increased tolerance to water stress (drought) and salt stress.