The relationships among drought, surface water flow, and groundwater recharge are not straightforward for most forest ecosystems due to the strong role that vegetation plays in the forest water balance. Hydrologic responses to drought can be either mitigated or exacerbated by forest vegetation depending upon vegetation water use and how forest population dynamics respond to drought. Understanding how drought impacts ecosystems requires understanding how drought impacts ecohydrological processes. Because different species and functional groups vary in their ecophysiological traits that influence water use patterns, changes in species assemblages can alter hydrological processes from the stand to the watershed scales. Recent warming trends and more prolonged and frequent droughts have accelerated the spread and intensity of insect attacks in the western US that kill nearly all of the canopy trees within forest stands, changing the energy balance of the land surface and affecting many hydrologic processes. In contrast, some eastern forest tree species and size classes can tolerate drought better than others, suggesting the potential for drought-mediated shifts in both species composition and structure. Predicting how these changes will impact hydrologic processes at larger spatial and temporal scales presents a considerable challenge. The biogeochemical consequences of drought, such as changes in stream chemistry, are closely linked to vegetation dynamics and hydrologic responses. As with other natural disturbances, droughts are difficult to prepare for because they are unpredictable. However, there are management options that may be implemented to minimize the impacts of drought on water quantity and quality. Examples include reducing leaf area by thinning and regenerating cut forests with species that consume less water, although a high level of uncertainty in both drought projections and anticipated responses suggests the need for monitoring and adaptive management.