The frequency and intensity of drought is increasing dramatically with global warming. Yet, few studies have characterized drought from its impact on the ecosystem services, the mechanisms through which ecosystems support life. As a result, little is known about the implications of increased drought on resource management. This case study characterizes drought by linking climate anomaly with the change in precipitation-runoff relationships, in the Loess Plateau of China, a water-limited region where re-vegetation in the area makes drought a major concern. We analyze droughts with duration greater than 5 years and annual precipitation anomalies more negative than −5 %, we found that continuous precipitation shifts is able to change watershed water balance in the water limited area, multi-year drought caused the precipitation-runoff relationship to change with a significantly descending trend (<i>p</i> < 0.05) compared to other historical records. For the whole Loess Plateau, the average runoff ratio decreased from 10 percent to 6.8 percent in 1991–1999. The joint probability and return period gradually increased with the increase of drought duration and severity. The ecosystem service of water yield was affected easily when the drought duration is not less than six years and the drought severity is greater than or equal to 0.55 (precipitation around ≤ 212 mm). At the same time, the growth ratio of annual NPP is also susceptible to prolonged drought, the growth ratio is lower in these watersheds which had a significant change in the PRR. Such studies are essential to ecosystem management in a water-limited area.