In Arabidopsis, the initiation and proliferation of stomatal lineage cells is controlled by SPEECHLESS (SPCH). Phosphorylation of SPCH at the post-translational level has been reported to regulate stomatal development. Here we report that IDD16 acts as a negative regulator for stomatal initiation by directly regulating SPCH transcription. In Arabidopsis, IDD16 overexpression decreased abaxial stomatal density in a dose-dependent manner. Time course analysis revealed that the initiation of stomatal precursor cells in the IDD16-OE plants was severely inhibited. Consistent with these findings, the transcription of SPCH was greatly repressed in the IDD16-OE plants. In contrast, IDD16-RNAi transgenic line resulted in enhanced stomatal density, suggesting that IDD16 is an intrinsic regulator of stomatal development. ChIP analysis indicated that IDD16 could directly bind to the SPCH promoter. Furthermore, Arabidopsis plants overexpressing IDD16 exhibited significantly increased drought tolerance and higher integrated water use efficiency (WUE) due to reduction in leaf transpiration. Collectively, our results established that IDD16 negatively regulates stomatal initiation via trans-repression of SPCH, and thus provide a practical tool for increasing plant WUE through the manipulation of IDD16 expression.