Banana is an important fruit crop and its yield is hampered by multiple abiotic stress conditions encountered during its growth. The NAC (NAM, ATAF, and CUC) transcription factors are involved in plant response to biotic and abiotic stresses. In the present study, we studied the induction of banana NAC042 transcription factor in drought and high salinity conditions and its overexpression in transgenic banana to improve drought and salinity tolerance. MusaNAC042 expression was positively associated with stress conditions like salinity and drought and it encoded a nuclear localized protein. Transgenic lines of banana cultivar Rasthali overexpressing MusaNAC042 were generated by Agrobacterium-mediated transformation of banana embryogenic cells and T-DNA insertion was confirmed by PCR and Southern blot analysis. Our results using leaf disc assay indicated that transgenic banana lines were able to tolerate drought and high salinity stress better than the control plants and retained higher level of total chlorophyll and lower level of MDA content (malondialdehyde). Transgenic lines analyzed for salinity (250 mM NaCl) and drought (Soil gravimetric water content 0.15) tolerance showed higher proline content, better Fv/Fm ratio, and lower levels of MDA content than control suggesting that MusaNAC042 may be involved in responses to higher salinity and drought stresses in banana. Expression of several abiotic stress-related genes like those coding for CBF/DREB, LEA, and WRKY factors was altered in transgenic lines indicating that MusaNAC042 is an efficient modulator of abiotic stress response in banana.