Reactive oxygen species (ROS) arise in the plant system due to inevitable influence of various environmental stimuli. Glutathione peroxidases are one of the important ROS scavengers inside the cell. A glutathione peroxidase (PgGPx) gene was previously found from Pennisetum glauccum abiotic stressed cDNA library. Enzyme kinetics data revealed that PgGPx possessed preference towards thioredoxin rather than glutathione as electron donor and thus belongs to the functional peroxiredoxin group. Moreover, its activity was found to be dependent on divalent cations, especially Cd2+ and homology model showed the presence of Cd2+ binding site in the protein. Site directed mutagenesis study of PgGPx protein revealed the vital role of two conserved Cysteine residues for its enzymatic activity and structural folding. Expression analysis suggested that PgGPx transcript is highly up-regulated in response to salinity and drought stresses. When expressed ectopically, PgGPx showed enhanced tolerance against multiple abiotic stresses in prokaryotic E. coli and model plant, rice. Transgenic rice plants showed lesser accumulation of MDA and H2O2; and higher accumulation of proline as compared to wild type (WT) plants in response to both salinity and drought stresses that clearly indicates suppression of lipid peroxidation and ROS generation in transgenic lines. Moreover, transgenic plants maintained better photosynthesis efficiency and higher level of antioxidant enzyme activity as compared to WT plants under stress conditions. These results clearly indicate the imperative role of PgGPx in cellular redox homeostasis under stress conditions, leading to the maintenance of membrane integrity and increased tolerance towards oxidative stress.