Adverse environmental stresses affect plant growth and crop yields. Sheepgrass (Leymus chinensis (Trin.) Tzvel), an important forage grass that is widely distributed in the east of Eurasia steppe, has high tolerance to extreme low temperature. Many genes that respond to cold stress were identified in sheepgrass by RNA‐sequencing, but more detailed studies are needed to dissect the function of those genes. Here, we found that LcFIN2, a sheepgrass freezing‐induced protein 2, encoded a chloroplast‐targeted protein. Expression of LcFIN2 was upregulated by freezing, chilling, NaCl and abscisic acid (ABA) treatments. Overexpression of LcFIN2 enhanced the survival rate of transgenic Arabidopsis after freezing stress. Importantly, heterologous expression of LcFIN2 in rice exhibited not only higher survival rate but also accumulated various soluble substances and reduced membrane damage in rice under chilling stress. Furthermore, the chlorophyll content, the quantum photochemistry efficiency of photosystem II (ΦPSII), the non‐photochemical quenching (NPQ), the net photosynthesis rate (Pn) and the expression of some chloroplast ribosomal‐related and photosynthesis‐related genes were higher in the transgenic rice under chilling stress. These findings suggested that the LcFIN2 gene could potentially be used to improve low‐temperature tolerance in crops.