The irrigation sector is usually the first water user to be restricted in case of drought and agriculture is most affected. It is very important for water planners to better understand the relationship between a water deficit and agricultural performance in times of drought. This paper examines the 1999-2002 drought in the Zayandeh Rud basin, central Iran. It reviews the impact of dam management, the impact of supply reduction on water allocation and agricultural production, and examines the coping strategies used by farmers at the local level. It shows that although volumes diverted were greatly reduced (and were even zero in 2002) the impact on production was much less, due to a series of adjustment and massive substitution of groundwater for surface water.