Bletilla striata is a valuable Chinese herbal medicinal plant widely used in various fields. To meet the market demand for this herb, the tissue culture technology of B. striata was developed. However, drought stress has been a significant threat to the survival of cultivated B. striata. To further understand the underlying mechanisms of B. striata under drought stress, its response was investigated at the physiological and transcriptional levels. Our photosynthesis results show that the decline of the net photosynthesis rate (Pn) in B. striata leaves was mainly caused by nonstomatal limitation factors. Using transcriptomic analysis 2398, differentially expressed genes (DEGs) were identified. KEGG enrichment analysis showed that DEGs involved in plant hormone signal transduction (ko04075) were significantly altered, especially the abscisic-acid signaling pathway. The up-regulations of the serine/threonine protein kinase (SnRK2) and S-type anion (SLAH2) channels might lead to stomatal closure, which is the reason for decline of photosynthesis. Moreover, the downregulation of cytochrome b6 and photosystem I reaction center subunit III/IV might be the major reason for nonstomatal limitation. In addition, B. striata enhanced the ability of ROS scavenging via activating the gene expression of superoxide dismutase, catalase, and peroxidase in response to drought stress. Our study enhanced the understanding of B. striata in response to drought stress.