Abstract The rice (Oryza sativa) PSEUDO-ETIOLATION IN LIGHT (OsPEL) microProtein family members function as dominant-negative regulators of chloroplast development and are conserved among land plants. Knockout of all 3 OsPEL genes enhanced plant greening traits and was accompanied by leaf anatomical modifications associated with chloroplast-enriched bundle sheath cells in rice. These phenotypic changes correlated with increased CO2 assimilation efficiency and yield. OsPEL1 specifically interacts with key positive regulators of photosynthesis, the rice GOLDEN2-LIKE (OsGLK) transcription factors and the PHOTOSYSTEM I ASSEMBLY 2 (OsPSA2) chaperone. OsPEL1 inhibits these regulators by sequestering OsGLK1 and OsPSA2 in the cytoplasm, which prevents their proper localization to the nucleus and chloroplast, respectively. Supported by RNA-seq evidence of transcriptional homeostasis in greening-related genes, we reveal a multilayered regulatory mechanism and identify the OsPEL family as a promising target for crop improvement.