Droughts are one of the world's most significant natural hazards. They have major impacts on the economy, environment, health and society. In 2001 and 2002, many regions within Canada experienced unprecedented drought conditions, or conditions unseen for at least 100 years in some regions. This article draws upon a national assessment of this drought with particular attention to its implications for the agriculture and water sectors, although some attention is also devoted to other sectors. The study's methodology involves a comprehensive inter-disciplinary, cause-effect integrated framework as a basis to explore the characteristics of drought and the associated biological and physical impacts and socio-economic consequences. Numerous primary and secondary sources of data were used, including public and semi-public sources such as Agriculture and Agri-Food Canada, Environment Canada, Statistics Canada, Crop Insurance Corporations and provincial governments, as well as phone interviews, focus groups, print media surveys and economic modelling. Evidence indicates that the risk of drought is increasing as demands for food and water relentlessly climb and the manifestations of climate change become more apparent. The key to better dealing with drought lies in taking the steps necessary to enhance our adaptive capacity and decrease vulnerability.