Ethylene plays important roles in plant growth and development, but the regulation of ethylene signaling is largely unclear, especially in crops such as rice (Orzya sativa). Here, by analysis of the ethylene-insensitive mutant mao huzi 11 (mhz11), we identified the GDSL lipase MHZ11, which modulates ethylene signaling in rice roots. MHZ11 localized to the endoplasmic reticulum membrane and has acyl-hydrolyzing activity. This activity affects the homeostasis of sterols in rice roots and is required for root ethylene response. MHZ11 overexpression caused constitutive ethylene response in roots. Genetically, MHZ11 acts with the ethylene receptor OsERS2 upstream of OsCTR2 and OsEIN2. The mhz11 mutant maintains more OsCTR2 in the phosphorylated form whereas MHZ11 overexpression promotes ethylene-mediated inhibition of OsCTR2 phosphorylation. MHZ11 co-localized with the ethylene receptor OsERS2, and its effect on OsCTR2 phosphorylation requires ethylene perception and initiation of ethylene signaling. The mhz11 mutant over-accumulated sterols and blocking sterol biosynthesis partially rescued the mhz11 ethylene response, likely by reducing receptor-OsCTR2 interaction and OsCTR2 phosphorylation. We propose that MHZ11 reduces sterol levels to impair receptor-OsCTR2 interactions and OsCTR2 phosphorylation for triggering ethylene signaling. Our study reveals a mechanism by which MHZ11 participates in ethylene signaling for regulation of root growth in rice.