A new drought index termed the “soil moisture drought index (SODI)” is developed to characterize droughts. The premise of the index is based on how much water is required to attain soil moisture at field capacity. SODI captures variations of precipitation, temperature, and soil moisture over time. Three widely used drought indices, including the standardized precipitation index (SPI), the standardized precipitation evapotranspiration index (SPEI), and the self-calibrated palmer drought index (sc-PDSI) are compared with SODI along with local hydrological variables such as streamflow, reservoir storage, and groundwater level for cross-validation. The result indicates that SODI reacts more evidently to relate changes in precipitation and temperature than SPI and SPEI by characterizing soil moisture over time. Results also show that SODI outperforms the existing drought indices in the sense that SODI can detect and quantify the extended severe droughts associated with climate variability and change. SODI will add momentum to build a case toward the use of soil moisture information for drought analysis in a changing environment.