Plant lateral root (LR) growth usually is stimulated by arbuscular mycorrhizal (AM) symbiosis. However, the molecular mechanism is still unclear. We used gene expression analysis, peptide treatment and virus-induced gene alteration assays to demonstrate that C-terminally encoded peptide (CEP2) expression in tomato was downregulated during AM symbiosis to mitigate its negative effect on LR formation through an auxin-related pathway. We showed that enhanced LR density and downregulated CEP2 expression were observed during mycorrhizal symbiosis. Synthetic CEP2 peptide treatment reduced LR density and impaired the expression of genes involved in indole-3-butyric acid (IBA, the precursor of IAA) to IAA conversion, auxin polar transport and the LR-related signaling pathway; however, application of IBA or synthetic auxin 1-naphthaleneacetic acid (NAA) to the roots may rescue both defective LR formation and reduced gene expression. CEP receptor 1 (CEPR1) might be the receptor of CEP2 because its knockdown plants did not respond to CEP2 treatment. Most importantly, the LR density of CEP2 overexpression or knockdown plants could not be further increased by AM inoculation, suggesting that CEP2 was critical for AM-induced LR formation. These results indicated that AM symbiosis may regulate root development by modulating CEP2, which affects the auxin-related pathway.