The worst drought in living memory hit Australia’s southeast and southwest, impoverishing farmers and increasing food prices. The drought increased the concern about climate change and water management, particularly in the Murray-Darling Basin. Dubbed the Millennium Drought, it was only partly relieved by rains in 2008, while some regions remained dry until 2010.

The years between 2001 and 2009 were the longest uninterrupted series of years with below median rainfall in southeast Australia since at least 1900. Scientists calculated that  El Niño conditions were a significant factor contributing to the lack of rainfall.  The drought ended with the return of a La Niña event in early 2010 that brought high rainfall and large‐scale flooding.

The millennium drought had a significant effect on agriculture, particularly on water-intensive crops such as cotton. Grain yields were down, stock feed became scarce and dairy farmers were hard hit. Water levels in the Murray River near its mouth reached record lows, causing salt water to flow back into the lake and river system.

In Australian cities, severe water restrictions were employed to cut water use as dam levels fell. State governments undertook various projects to maintain supply to metropolitan areas, including the building of desalination plants. In Toowoomba, residents voted down a plan to add recycled sewage to the water supply.

In Victoria, a pipeline was constructed to divert some water from the Goulburn River system (part of the Murray-Darling basin system) to Melbourne. The 70-kilometre pipeline transferred water from the Goulburn River, north of Yea, over the range to the Sugarloaf Reservoir. The proposal caused an outcry from rural centres but was approved by the Federal Government in 2009 and turned on in early 2010. The Victorian Government has since ruled that the water allocation can only be used in times of critical human need: when Melbourne’s total water storages were less than 30% full on 30 November of any year.

In 2018 much of Australia was again in drought but, while severe,  it was not as prolonged as the millennium drought — the longest dry spell in post-colonial history, with nine consecutive years of low autumn rains, crucial for the southern cropping season.