LESION SIMULATING DISEASE1 (LSD) family genes play a key role in plant response to abiotic and biotic stress. However, their functions in the resistance of tree to drought stress are still largely not clear. Here, five LSD family genes in poplar genome were identified. Phylogenetic and collinear relationship analysis showed that they belonged to LSD, LSD-one-like 1 (LOL1) and LSD-one-like 2 (LOL2) subfamilies, and experienced two segmental duplication events. PagLSDs were highly conserved in gene structure, and all PagLSDs contained at least two LSD domains. Expression pattern and cis-acting element analyses showed that PagLSDs were widely expressed in different organs, significantly induced by polyethylene glycol, and possessed a great number of plant growth, development, plant hormones, and biotic and abiotic stress elements in their promoter regions. Further physiological experiments with transgenic poplar plants revealed that overexpression of PagLOL1b significantly enhanced the drought tolerance of transgenic plants. The improved drought tolerance was closely associated with the significant increase in stomatal closure, water use efficiency, antioxidant enzyme gene expression and antioxidant enzyme activity in transgenic plants. The results in our study imply that PagLOL1b has great potential in the engineering of new tree varieties resistant to drought stress.