Drought is an intrinsic part of the Australian landscape. There is no universal definition of drought, one suggestion is that drought is a prolonged, abnormally dry period when there is not enough water for users' normal needs. Drought is not simply low rainfall, for then much of inland Australia would be in perpetual drought. The National Drought Policy Review Task Force noted that an objective, scientific definition of drought has proved difficult to standardise on a regional or industry basis because of the complexity of considerations involved. Instead, the Task Force noted that in an agricultural context, drought represents one of the uncertainties farmers face in maintaining the volume and quality of production. It finally adopted the following working definition of drought: "drought represents the risk that existing agricultural activity may not be sustainable, given spatial and temporal variations in rainfall and other climatic conditions."

Australia has one of the most variable rainfall climates in the world, and severe drought affects some part of Australia about once every 18 years. However, intervals between severe droughts have varied from four to 38 years. Whilst there are many causes for these fluctuations, the most influential is the climate phenomenon called the Southern Oscillation. This is a major air pressure shift between the Asian and east Pacific regions whose best known extremes are El Nino events. Many, but not all, droughts over eastern and northern Australia are the result of an El Nino event.

Contemporary drought policies have as their basis the findings of the 1989 Commonwealth commissioned Drought Policy Review Task Force. The Task Force was established following a Commonwealth decision to remove drought funding from the Natural Disaster Relief Arrangements from 1 July 1989. The Task Force was critical of the inclusion of drought under natural disasters relief schemes, where the focus became not on the variability of climate, and the ability to cope with it, but the conditions under which government assistance could become available. The Task Force recommended that a national drought policy should focus attention on the respective roles of producers and governments in implementing a self-reliant, risk management approach to drought. A new National Drought Policy was ratified by state and commonwealth governments in 1992. The three principles of the Policy are to: encourage primary producers and other sections of rural Australia to adopt self-reliant approaches to managing climatic variability; maintain and protect Australia's agricultural and environmental resource base during periods of extreme climatic stress; and ensure early recovery of agricultural and rural industries, consistent with long term sustainable levels.

Federal involvement in drought relief is determined on the basis of exceptional circumstances. State Government relief commences after an area has been drought declared for a period of six months. The current drought now affects 92 percent of the State, and debate has focused on how to 'drought-proof' the nation.