Photosynthesis is sensitive to environmental stress and must be efficiently modulated in response to abiotic stress. However, the underlying mechanisms are not well understood. Here we report that ARABIDOPSIS THALIANA HOMEOBOX 17 (ATHB17), an Arabidopsis HD-Zip transcription factor, regulated the expression of a number of photosynthesis associated nuclear genes (PhANGs) involved in the light reaction and ATSIG5 in response to abiotic stress. ATHB17 was responsive to ABA and multiple stress treatments. ATHB17-overexpressing plants displayed enhanced stress tolerance, whereas its knockout mutant was more sensitive compared to the wild type. Through RNA-seq and quantitative real-time reverse transcription PCR (qRT-PCR) analysis, we found that ATHB17 did not affect the expression of many known stress-responsive marker genes. Interestingly, we found that ATHB17 down-regulated many PhANGs and could directly modulate the expression of several PhANGs by binding to their promoters. Moreover, we identified ATSIG5, encoding a plastid sigma factor, as one of the target genes of ATHB17. Loss of ATSIG5 reduced salt tolerance while overexpression of ATSIG5 enhanced salt tolerance, similar to that of ATHB17. ATHB17 can positively modulate the expression of many plastid encoded genes (PEGs) through regulation of ATSIG5. Taken together, our results suggest that ATHB17 may play an important role in protecting plants by adjusting expression of PhANGs and PEGs in response to abiotic stresses.