Within the chloroplasts reactive oxygen species (ROS) are generated during photosynthesis and stressful conditions. Excessive ROS damages chloroplasts and reduces photosynthesis if not properly detoxified. In this current study, we document that chloroplasts produce melatonin, a recently-discovered plant antioxidant molecule. When N-acetylserotonin, a substrate for melatonin synthesis, was fed to purified chloroplasts, they produced melatonin in a dose-response manner. To further confirm this function of chloroplasts, the terminal enzyme for melatonin synthesis, N-acetylserotonin-O-methyltransferase (ASMT), was cloned from apple rootstock, Malus zumi. The in vivo fluorescence observations and Western blots confirmed MzASMT9 was localized in the chloroplasts. A study of enzyme kinetics revealed that the Km and Vmax of the purified recombinant MzASMT9 protein for melatonin synthesis were 500 μM and 12 pmol/min·mg protein, respectively. Arabidopsis ectopically-expressing MzASMT9 possessed improved melatonin level. Importantly, the MzASMT9 gene was found to be upregulated by high light intensity and salt stress. Increased melatonin due to the highly-expressed MzASMT9 resulted in Arabidopsis lines with enhanced salt tolerance than wild type plants, as indicated by reduced ROS, lowered lipid peroxidation and enhanced photosynthesis. These findings have agricultural applications for the genetic enhancement of melatonin-enriched plants for increasing crop production under a variety of unfavorable environmental conditions.