Many parts of Australia have experienced their worst single- and multi-year droughts on record over the last decade. These recent climate conditions have severely stressed our water supply systems and the communities that depend on them. With the threat of climate change potentially further exacerbating droughts in the years ahead, Engineers Australia firmly believes that: (i) A national review of the adequacy of drought response plans is urgently required. A recent national overview of long-term water resources planning by the Academy of Technological Sciences and Engineering (ATSE, 2007) revealed large inconsistencies and inadequacies in the standard of that planning. Based on the knowledge of the authors of this paper, similar outcomes are expected in the area of drought response planning. The scope of the review should include assessment of the transparency and defensibility of the timing of implementation of drought response actions; (ii) Continuing investment is needed in climate research to better understand the underlying drivers of our climate variability and their interactions at a range of time scales. The majority of research to date has focused on short-term sea surface temperature or pressure differentials across the globe (eg. the El Niño/Southern Oscillation) without understanding the longer-term drivers behind these temperature and pressure responses, which are being investigated through the Indian Ocean Climate Initiative and, more recently, the South East Australia Climate Initiative. This investment should include consolidation for and communication to the water industry of existing knowledge of links between long-term climate variability and key climate drivers including Earth’s orbital cycles, solar activity, atmospheric chemistry, major volcanic eruptions, surface and deeper ocean circulations (including the thermohaline circulation – the “great ocean conveyor belt”), sea ice, and major bushfires; (iii) Greater collaboration is required between climatologists, paleoclimatologists and water resource engineers to take advantage of recent scientific advances that have direct implications for drought response planning. Engineers Australia proposes that the National Water Commission should conduct a national forum to bring these three industry groups together with the aim of providing meaningful, useful advice to water industry practitioners from the latest climate research and to guide research activities towards more practical outcomes. This will enable water resource planners to better understand natural climate variability in the longer term and appropriately take into account greenhouse gas induced climate change, including an understanding of uncertainties surrounding both current and future climate; (iv) The development of an industry standard end-use demand model for urban areas should be accelerated. The absence of an industry standard tool in this area currently inhibits the ability to rapidly assess the financial costs of imposing restrictions on particular sectors of the community versus supply augmentation costs to avoid those restrictions. Such a tool is needed to make informed decisions about preparedness to pay for new infrastructure to avoid or reduce restrictions; and (v) More sophisticated water products and market mechanisms have a strong role to play in better managing scarce resources between similar types of users during times of drought. This has become increasingly important with demand hardening over recent decades, which has reduced the water savings that are achievable from water restrictions. Any expansion of water markets as a drought management tool must, however, occur within a regulatory framework that seeks to achieve equitable social outcomes by acknowledging the inherent social value of water to communities and the food security value of water to the nation. It is acknowledged in preparing this position paper that our understanding of drought and our responses to it are rapidly changing, particularly in light of climate change. This is particularly the case with the current reviews of aspects of the National Drought Policy, which were being undertaken by several government agencies at the time of drafting this paper. It is hoped that this position paper will encourage both greater dialogue and investment in drought forecasting, planning, adaptation and mitigation to enable Australia to be well placed to cope with future climate conditions.