The Standard Precipitation Index (SPI) is employed to track drought and assess the impact of rainfall on shallow groundwater levels in three selected irrigation areas of the Murray-Darling Basin in Australia. The continuous SPI method can provide better means of quantifying rainfall variability and correlating it with changes of shallow watertable levels since it is based on continuous statistical functions comparing rainfall variability over the entire rainfall record. Drought analysis in the Australian irrigation areas using SPI indicates that the recent 2000-2006 drought is not the worst drought that has occurred in the recorded history, however if the current low rainfall pattern continues, it would be one of the most prolonged drought. The shallow groundwater fluctuations in the Murrumbidgee Irrigation Area show a very strong correlation with winter rainfall variation. The shallow piezometric levels in the Coleambally Irrigation Area show a weaker degree of correlation with the SPI due to local and regional groundwater dynamics and changes in rice water use. The groundwater levels in the Murray Irrigation Area show least correlation with the SPI, which may be attributed to improved irrigation management practices and complex nature of the groundwater recharge and discharge processes in this area. The overall results however show that the SPI correlates well with fluctuations in shallow ground water table in irrigation areas, and can also capture major drought patterns in Australia. The correlation of SPI with groundwater levels can be adopted for environmental reporting and used as a method of relating climatic impacts on watertables. Differences in piezometric response between years with similar winter and yearly SPI values can be attributed to improvement in irrigators' management practices.