The Central Asian deserts are a major dust source region that can potentially have a substantial impact on the Caspian Sea. Despite major advances in the modeling and prediction of the Caspian Sea Level (CSL) during recent years, no study to date has investigated the climatic effects of dust on the hydrological budget of the Sea. In this study, we utilize a regional climate model coupled to an interactive emission and transport scheme to simulate the effects of dust and other aerosol in the Caspian region. First, we present a validation of the model using a variety of AOD satellite observations as well as a climatology of dust storms. Compared to the range of satellite estimates, the model's AOD climatology is closer to the lower end of the observations, and exhibit a significant underestimation over the clay deserts found on the Ustyurt plateau and north of the Aral Sea. Nevertheless, we find encouraging results in that the model is able to reproduce the gradient of increasing AOD intensity from the middle to the southern part of the Sea. Spatially, the model reproduces reasonably well the observed climatological dust storm frequency maps which show that the most intense dust source regions to be found in the Karakum desert in Turkmenistan and Kyzylkum desert in Uzbekistan east of the Aral Sea. In the second part of this study we explore some impacts of dust and other aerosol on the climatology of the region and on the energy budget of the Sea. We find that the overall direct radiative effects of dust and other aerosol reduce the amount of shortwave radiation reaching the surface, dampen boundary layer turbulence and inhibit convection over the region. We also show that by including dust and aerosol in our simulation, we are able to reduce the positive biases in sea surface temperatures by 1-2 degrees C. Evaporation is also considerably reduced, resulting in an average difference of approximately 10 mm year(-1) in the Sea's hydrological budget which is substantial. These findings prove that an accurate projection of climate-induced changes to the CSL must include the effects of dust and other aerosol.