Drought and salinity are major environmental stresses that impair crop growth and productivity worldwide. Improving drought and salt tolerance of crops with microbial mutualists is an effective and environmentally sound strategy to meet the demands of the ever-growing world population. In the present study, we found that the Streptomyces albidoflavus OsiLf-2, a moderately salt-tolerant endophytic actinomycete, produced abundant osmolytes, including proline, polysaccharides, and ectoine. Inoculation with OsiLf-2 increased the osmotic-adjustment ability of the rice host by increasing the proline content (by 250.3% and 49.4%) and soluble sugar (by 20.9% and 49.4%) in rice under drought and salt conditions, relative to the uninoculated control. OsiLf-2 increased stress responses in the rice host at the physiological and biochemical levels (photosynthesis efficiency, osmolytes and antioxidant content), and the gene level (osmolytes synthesis, stress-responsive and ion-transport related genes), raising rice yields under both greenhouse and saline–alkaline soil conditions. The use of endophytic actinomycetes offers a promising biotechnological approach to developing stress-tolerant plants.