The most recent drought has been one of the most severe on record with large parts of southern and eastern Australia experiencing dry conditions since 1996. Moreover, 'For the agriculturally important Murray- Darling Basin, however, October 2007 marks the sixth anniversary of lower than average rainfall totals, with the November 2001 to October 2007 period being its equal driest such six-year period on record.' While there have been many studies of the impacts of drought, these have mostly focused on the macroeconomic impact or the impacts in very specific sectors or geographic locations. There are very few large-scale surveys that provide a focus on the impact of droughts on the wellbeing of families and communities in rural areas of Australia. It is also important to consider people who are not directly involved in primary production but are potentially negatively impacted upon by the drought. To improve our understanding of the impact of drought on families and communities in rural and regional Australia and the implications for policy, 8000 rural and regional individuals were surveyed between September to December 2007, stratified according to the level of drought in the area. In this paper we describe our the Rural and Regional Families study, outline our definition of drought and then examine the association between drought and individual and family wellbeing. Specifically, we test whether there is an association between drought and financial hardship, employment, mental health problems, the quality of couple and family relationships, community social cohesion and participation in community organisations, and the availability of key services in the area. Differences in levels of financial hardship and mental health across three groups are also tested: farming families, families with a person employed in agriculture and families where no individual is employed in agriculture. We then discuss the implications of these findings.