Drought on the Canadian prairies is the single most limiting factor to crop yield. Several indices have been developed that indicate the onset, severity, and persistence of drought. This study was conducted to assess the validity of the Palmer Drought index for characterizing drought on the Canadian prairies. When the empirical relationship used by Palmer for calculating the weighting factor K was applied to historical weather data, the relationship appeared inappropriate. There was only a weak relationship between K and the moisture balance variables from which it is usually calculated. The regional correction factor was calculated to be 14.2, which is lower than the generally accepted value of 17.67. A soil water model, the Versatile Soil Moisture Budget (VMB), was coupled with the Palmer model to improve the modeling of soil water. The drought index obtained with the VMB explained 49% of the variation in wheat yield, while the original Palmer index explained 33%. In addition, a new drought index, which does not rely on the weighting factor K explained 57% of the variation in wheat yield, which is almost twice the variation explained by the original Palmer index.