MicroRNAs are 19- to 22-nucleotide small noncoding RNAs that have been implicated in abiotic stress responses. In this study, we found that knockdown of microRNA166, using the Short Tandem Target Mimic (STTM) system, resulted in morphological changes that confer drought resistance in rice (Oryza sativa). From a large-scale screen for miRNA knockdown lines in rice, we identified miR166 knockdown lines (STTM166); these plants exhibit a rolled-leaf phenotype, which is normally displayed by rice plants under drought stress. The leaves of STTM166 rice plants had smaller bulliform cells and abnormal sclerenchymatous cells, likely causing the rolled-leaf phenotype. The STTM166 plants had reduced stomatal conductance and showed decreased transpiration rates. The STTM166 lines also exhibited altered stem xylem and decreased hydraulic conductivity, likely due to the reduced diameter of the xylem vessels. Molecular analyses identified rice HOMEODOMAIN CONTAINING PROTEIN4 (OsHB4), a member of HD-Zip III gene family, as a major target of miR166; moreover, rice plants overexpressing a miR166-resistant form of OsHB4 resembled the STTM166 plants, including leaf rolling and higher drought resistance. The genes downstream of miR166-OsHB4 consisted of polysaccharide synthesis-related genes that may contribute to cell wall formation and vascular development. Our results suggest that drought resistance in rice can be increased by manipulating miRNAs, which leads to developmental changes, such as leaf rolling and reduced diameter of the xylem, that mimic plants’ natural responses to water-deficit stress.