Drought is a critical environmental factor which constrains plant survival and growth. Genetic engineering provides a credible strategy to improve drought tolerance of plants. Here, we generated transgenic poplar lines expressing the isopentenyl transferase gene (IPT) under the driver of PtRD26 promoter (PtRD26pro‐IPT). PtRD26 is a senescence and drought‐inducible NAC transcription factor. PtRD26pro‐IPT plants displayed multiple phenotypes, including improved growth and drought tolerance. Transcriptome analysis revealed that auxin biosynthesis pathway was activated in the PtRD26pro‐IPT plants, leading to an increase in auxin contents. Biochemical analysis revealed that ARABIDOPSIS RESPONSE REGULATOR10 (PtARR10), one of the type‐B ARR transcription factors in the cytokinin pathway, was induced in PtRD26pro‐IPT plants and directly regulated the transcripts of YUCCA4 (PtYUC4) and YUCCA5 (PtYUC5), two enzymes in the auxin biosynthesis pathway. Overexpression of PtYUC4 enhanced drought tolerance, while simultaneous silencing of PtYUC4/5 evidently attenuated the drought tolerance of PtRD26pro‐IPT plants. Intriguingly, PtYUC4/5 displayed a conserved thioredoxin reductase activity that is required for drought tolerance by deterring reactive oxygen species accumulation. Our work reveals the molecular basis of cytokinin and auxin interactions in response to environmental stresses, and shed light on the improvement of drought tolerance without a growth penalty in trees by molecular breeding. Transgenic poplar plants expressing the cytokinin biosynthesis enzyme isopentenyl transferase under the control of a senescence‐ and drought‐inducible promoter display improved growth and drought‐tolerance phenotypes via effects on auxin biosynthesis and detoxification of reactive oxygen species.