Dormancy is an important developmental program allowing plants to withstand extended periods of extreme environmental conditions, such as low temperature or drought. Seed dormancy, bud dormancy and desiccation tolerance have been extensively studied, but little is known about the mechanisms involved in the dormancy of drought-tolerant plants, key to the survival of many plant species in arid and semi-arid environments. Subtractive PCR cloning of cDNAs from Retama raetam, a C3 drought-tolerant legume, revealed that dormancy in this plant is accompanied by the accumulation of transcripts encoding a pathogenesis-related, PR-10-like protein; a low temperature-inducible dehydrin; and a WRKY transcription factor. In contrast, non-dormant plants subjected to stress conditions contained transcripts encoding a cytosolic small heat-shock protein, HSP18; an ethylene-response transcriptional co-activator; and an early light-inducible protein. Physiological and biochemical analysis of Rubisco activity and protein in dormant and non-dormant tissues suggested a novel post-translational mechanism of regulation that may be controlled by the redox status of cells. Ultrastructural analysis of dormant plants revealed that air spaces of photosynthetic tissues contained an extracellular matrix that may function to prevent water loss. The cytosol of dormant cells appeared to be in a glassy state, limiting metabolic activity. A combination of biochemical, molecular and structural mechanisms, in association with metabolic suppression, may be key to the extreme drought tolerance of R. raetam and its acclimation to the desert ecosystem. These may enable plants to withstand long periods of drought, as well as rapidly to exit dormancy upon rainfall.