This study aimed to isolate plant growth and drought tolerance-promoting bacteria from the nutrient- poor rhizosphere soil of several plant species from the Thar desert and unravel their molecular mechanisms of plant growth promotion, to develop effective biofertilizers for arid agriculture. Among our isolates of Thar desert rhizobacteria, Enterobacter cloacae C1P-IITJ, Kalamiella piersonii J4-IITJ, and Peribacillus frigoritolerans T7-IITJ, significantly enhanced root and shoot growth in the model plant Arabidopsis thaliana under PEG-induced drought stress in the lab. Whole genome sequencing and biochemical analyses of the non-pathogenic bacterium T7-IITJ revealed its plant growth-promoting traits, viz., solubilization of phosphate, iron, and nitrate and production of exopolysaccharides and auxin. Transcriptome analysis of Arabidopsis thaliana inoculated with T7-IITJ and exposure to drought revealed the induction of plant genes for photosynthesis, auxin and jasmonate signaling, nutrient mining and sequestration, redox homeostasis, and secondary metabolite biosynthesis pathways related to beneficial bacteria-plant interaction, but repression of many stress-responsive genes. Biochemical analyses indicated enhanced proline, chlorophyll, iron, phosphorous, and nitrogen content and reduced reactive oxygen species in plant tissues due to T7-IITJ inoculation. This bacterium could also improve the germination and seedling growth of Tephrosia purpurea, Triticum aestivum, and Setaria italica under drought. Additionally, T7-IITJ inhibited the growth of two plant pathogenic fungi, Rhizoctonia solani, and Fusarium oxysporum. These results suggest P. frigoritolerans T7-IITJ is a potent biofertilizer which can regulate plant genes promoting growth and drought tolerance.