Drought is one of the main abiotic stresses that affect plant growth and development, and eventually reduce crop yield. Circular RNAs (circRNAs) have been widely detected in eukaryotic organisms. The function of circRNAs in plant stress responses remain largely unknown. Previously, we identified 2174 and 1354 high confidence circRNAs in maize and Arabidopsis, respectively, and found that a large number of circRNAs were differentially expressed after drought stress, indicating important roles of these molecules in plant drought stress response. In this study, we found that the circular RNA circOST1 in Arabidopsis produced by OST1 gene significantly increased its expression level under severe drought conditions. Overexpression of circOST1 reduced plant drought resistance. RNA pull down and RNA Immunoprecipitation Assay showed that circOST1 could bind to P2 protein. Further experiments showed that circOST1 could competitively bind P2 with 26S proteasome subunits S30 and S31, thereby inhibiting the degradation of P2 protein. Transgenic studies showed that excessive accumulation of P2 protein could reduce plant drought resistance. Our study sheds new light on plant drought stress regulatory mechanisms by revealing the roles of circOST1-P2 regulatory module in Arabidopsis drought response.