Abstract Finding the adequate balance between wood formation and abiotic stress resistance is still an important challenge for industrial woody crops. In this study, PeNAC122, a member of the NAC transcription factor (TF) family highly expressed in xylem, was cloned from Populus euphratica. Tissue expression and β-glucuronidase (GUS) staining showed that PeNAC122 was exclusively expressed in phloem fiber and secondary xylem of stems. Subcellular and yeast transactivation assays confirmed that PeNAC122 protein existed in the nucleus and did not have transcriptional activation and inhibitory activity. Overexpression of PeNAC122 poplar lines exhibited reduced plant height, thickened xylem, and accumulated lignin content in stems, and also upregulates the expression of secondary cell wall biosynthetic genes. Moreover, overexpression of PeNAC122 lines displayed more tolerance to PEG6000-induced osmotic stress, with stronger photosynthetic performance, higher antioxidant enzyme activity, and less accumulation of reactive oxygen species in leaves, and higher expression levels of stress response genes DREB2A, RD29, and NCED3. These results indicate that PeNAC122 plays a crucial role in wood formation and abiotic stress tolerance, which, in addition to potential use in improving wood quality, provides further insight into the role of NAC family TFs in balancing wood development and abiotic stress resistance.