Over the past decade the southern catchments of the Murray Darling Basin (MDB), responsible for much of Australia's agricultural output, have experienced a severe drought (termed the “Big Dry”) with record high temperatures and record low inflow. We find that during the Big Dry the sensitivity of soil moisture to rainfall decline is over 80% higher than during the World War II drought from 1937–1945. A relationship exists between soil moisture and temperature independent of rainfall, particularly in austral spring and summer. Annually, a rise of 1°C leads to a 9% reduction in soil moisture over the southern MDB, contributing to the recent high sensitivity. Since 1950, the impact from rising temperature contributes to 45% of the total soil moisture reduction. In a warming climate, as the same process also leads to an inflow reduction, the reduced water availability can only be mitigated by increased rainfall. Other implications for future climate change are discussed.