Vascular tissues are very important for providing both mechanical strength and long-distance transport. The molecular mechanisms of regulation of vascular tissue development are still not fully understood. In this study we identified ANAC005 as a membrane-associated NAC family transcription factor that regulates vascular tissue development. Reporter gene assays showed that ANAC005 was expressed mainly in the vascular tissues. Increased expression of ANAC005 protein in transgenic Arabidopsis caused dwarf phenotype, reduced xylem differentiation, decreased lignin content, repression of a lignin biosynthetic gene and genes related to cambium and primary wall, but activation of genes related to the secondary wall. Expression of a dominant repressor fusion of ANAC005 had overall the opposite effects on vascular tissue differentiation and lignin synthetic gene expression. The ANAC005-GFP fusion protein was localized at the plasma membrane, whereas deletion of the last 20 amino acids, which are mostly basic, caused its nuclear localization. These results indicate that ANAC005 is a cell membrane-associated transcription factor that inhibits xylem tissue development in Arabidopsis.