Tree peony (Paeonia section Moutan DC.) is a famous ornamental plant, and P. ostii has been used for seed oil production in China because it is rich in α-linolenic acid. P. ostii has some resistance to drought, but lack of water can severely hinder its growth and development in arid areas. In order to clarify drought stress induced physiological and molecular changes of P. ostia, its physiological and transcriptomic analyses were performed under drought stress, and we found that P. ostii leaves drooped significantly 12 days after treatment and observed a significant increase in all detected physiological indices in response to drought treatment except leaf water content, chlorophyll, and carotenoid content. Meanwhile, the activity of three antioxidant enzymes basically increased under drought treatment. Moreover, drought treatment significantly reduced photosynthetic and chlorophyll fluorescence parameters except non-photochemical quenching (qN), and maintained more intact mesophyll cell structures. Additionally, many differentially expressed genes (DEGs) were found by transcriptome sequencing, which play an important role in P. ostia drought tolerance by controlling a variety of biological processes, including the reactive oxygen species (ROS) system, chlorophyll degradation and photosynthetic competency, fatty acid metabolism, proline metabolism, biosynthesis of secondary metabolism, and plant hormone metabolism. These results provide a better understanding of P. ostii responses to drought stress.