Dehydrins (DHNs), as a sub-family of group two late embryogenesis-abundant (LEA) proteins, have attracted considerable interest owing to their functions in enhancing abiotic stress tolerance in plants. Our previous study showed that the expression of CaDHN5 (a dehydrin gene from pepper) is strongly induced by salt and osmotic stresses, but its function was not clear. To understand the function of CaDHN5 in the abiotic stress responses, we produced pepper (Capsicum annuum L.) plants, in which CaDHN5 expression was down-regulated using VIGS (Virus-induced Gene Silencing), and transgenic Arabidopsis plants overexpressing CaDHN5. We found that knock-down of CaDHN5 suppressed the expression of manganese superoxide dismutase (MnSOD) and peroxidase (POD) genes. These changes caused more reactive oxygen species accumulation in the VIGS lines than control pepper plants under stress conditions. CaDHN5-overexpressing plants exhibited enhanced tolerance to salt and osmotic stresses as compared to the wild type and also showed increased expression of salt and osmotic stress-related genes. Interestingly, our results showed that many salt-related genes were upregulated in our transgenic Arabidopsis lines under salt or osmotic stress. Taken together, our results suggest that CaDHN5 functions as a positive regulator in the salt and osmotic stress signaling pathways.