Rapid accumulation of toxic products from reactions of reactive oxygen species (ROS) with lipids and proteins significantly contributes to the damage of crop plants under biotic and abiotic stresses. Here we have identified a stress-activated alfalfa gene encoding a novel plant NADPH-dependent aldose/aldehyde reductase that also exhibited characteristics of the homologous human enzyme. The recombinant alfalfa enzyme is active on 4-hydroxynon-2-enal, a known cytotoxic lipid peroxide degradation product. Ectopic synthesis of this enzyme in transgenic tobacco plants provided considerable tolerance against oxidative damage caused by paraquat and heavy metal treatment. These transformants could also resist a long period of water deficiency and exhibited improved recovery after rehydration. We found a reduced production of lipid peroxidation-derived reactive aldehydes in these transformed plants under different stresses. These studies reveal a new and efficient detoxification pathway in plants.