This study demonstrated that the Standardised Flow Index (SFI) was a simple and useful tool to research, monitor and manage hydrologic drought in a highly regulated river system, the Murrumbidgee River in southeast Australia. To validate the applicability of the theory underlining the widely used Standardised Precipitation Index (SPI) to river discharge data, we investigated the probability distribution of the time series of monthly river discharge month by month using long-term (over 100 years) river flow records. Our results showed that the Gamma probability distribution function was adequate to describe and model the skewed river flow data. The generalised additive models (GAM) with Locally Estimated Scattersplot Smoothing (LOESS) additive terms were applied to the computed SFI and SPI sequences to investigate the impacts of river regulation and water diversion on the duration and magnitude of hydrologic droughts in Lower Murrumbidgee River from 1890. The results revealed that upstream regulations had successfully reduced the drought severity at Wagga Wagga, a weir located downstream of the two major dams but immediately upstream of the major irrigation areas. However, the hydrological benefits of river regulation gradually disappeared as the river travels downstream and more and more water abstracted. At Balranald, the end valley weir, hydrologic drought was progressively aggravated during the modelling period, and the impacts were greater during drier periods. The results of the study highlighted the importance of balancing the needs between upstream and downstream water users in river management.