Many rural Australian communities continue to endure a prolonged drought. The mental health effects of short-term natural disaster are well known; those of a long-term and chronic natural disaster such as drought are less well understood. However, in addition to immediate distress there are likely to be feelings of loss, grief and hopelessness, all of which are implicated in an increased risk of subsequent psychiatric morbidity. Furthermore, rural Australia is at a relative disadvantage for early and effective mental health intervention due to a lack of resources, compared with urban Australia. This qualitative research investigates the experience of drought in two farming communities in the state of New South Wales. Farmers, farm and non-farm businesspeople, and health workers took part in focus group discussions of the effects of drought on themselves, their families and their community. In addition to current distress related to financial and workload problems, people reported experiencing significant distress from the emotional impact of environmental degradation, from loss of hope for the future of their community, and from feelings of being misunderstood by the wider Australian community. The stressors affecting farming communities during times of drought are likely to be associated with increased risk of mental health problems.