Urbanization has exerted considerable impacts on urban water systems and ecological environments, yet its effects on local meteorological drought remain under-explored. The primary challenge to local-scale drought analysis is the scarcity of meteorological datasets with sufficient spatial and temporal resolution. To address the research gap, we initially proposed a two-step fusion framework, integrating both surface (i.e., gridded data)-surface and point (i.e., in-situ data)-surface fusion. The framework was applied to generate daily precipitation and average/maximum/minimum air temperature at a 1 km resolution through the integration of high-resolution remotely sensed datasets across the Yangtze River Basin (YRB), China. The final fused data demonstrated excellent performance, achieving a PCC (RMSE) of 0.806 (5.414 mm/day), 0.993 (1.138 °C), 0.987 (1.443 °C), and 0.988 (1.376 °C) for precipitation and average/maximum/minimum air temperature, respectively. A comparison of our fused data with CPC, ERA5-Land, CMFD, CHIRPS, IMERG, and TMPA products confirmed its capability in capturing local-scale meteorological dynamics by improving spatial resolution from 0.1°-0.25° to 1 km. Utilizing these high-resolution datasets, we quantified urbanization's impacts on local drought across 52 major cities in the YRB. We found that urbanization significantly magnified extreme Standardized Precipitation Evapotranspiration Index (SPEI) and drought severity in 69.2% and 61.5% of these cities, respectively. The effects of urbanization on extreme SPEI were amplified by the increase of urbanization rates, with a slope of −0.24 (p < 0.05). To further examine the spatial patterns of urbanization-induced local drought, we proposed a drought spatial field identification method, utilizing it in three representative urban regions: Chengdu, Wuhan, and the Yangtze River Delta. Our findings revealed that urbanization led to more intense peak drought intensity and average drought severity. In addition, urban drought fields showed lower effective radius, indicating more concentrated drought towards urban regions. While urbanization is projected to continue alongside rapid population growth in the future, the advanced application of remote sensing data and technology in this study not only improves our understanding of urban water resource challenges but also equips urban planners with the necessary data to develop effective drought mitigation strategies.