Grasses have highly specialized flowers and their outer floral organ identity remains unclear. In this study, we identified and characterized rice mutants that specifically disrupted the development of palea, one of the outer whorl floral organs. The depressed palea1 (dp1) mutants show a primary defect in the main structure of palea, implying that palea is a fusion between the main structure and marginal tissues on both sides. The sterile lemma at the palea side is occasionally elongated in dp1 mutants. In addition, we found a floral organ number increase in dp1 mutants at low penetration. Both the sterile lemma elongation and the floral organ number increase phenotype are enhanced by the mutation of an independent gene SMALL DEGENERATIVE PALEA1 (SDP1), whose single mutation causes reduced palea size. E function and presumable A function floral homeotic genes were found suppressed in the dp1–2 mutant. We identified the DP1 gene by map-based cloning and found it encodes a nuclear-localized AT-hook DNA binding protein, suggesting a grass-specific role of chromatin architecture modification in flower development. The DP1 enhancer SDP1 was also positional cloned, and was found identical to the recently reported RETARDED PALEA1 (REP1) gene encoding a TCP family transcription factor. We further found that SDP1/REP1 is downstreamly regulated by DP1.