A monthly dataset of Palmer Drought Severity Index (PDSI) from 1870 to 2002 is derived using historical precipitation and temperature data for global land areas on a 2.5° grid. Over Illinois, Mongolia, and parts of China and the former Soviet Union, where soil moisture data are available, the PDSI is significantly correlated (r = 0.5 to 0.7) with observed soil moisture content within the top 1-m depth during warm-season months. The strongest correlation is in late summer and autumn, and the weakest correlation is in spring, when snowmelt plays an important role. Basin-averaged annual PDSI covary closely (r = 0.6 to 0.8) with streamflow for seven of world's largest rivers and several smaller rivers examined. The results suggest that the PDSI is a good proxy of both surface moisture conditions and streamflow. An empirical orthogonal function (EOF) analysis of the PDSI reveals a fairly linear trend resulting from trends in precipitation and surface temperature and an El Niño– Southern Oscillation (ENSO)-induced mode of mostly interannual variations as the two leading patterns. The global very dry areas, defined as PDSI < -3.0, have more than doubled since the 1970s, with a large jump in the early 1980s due to an ENSO-induced precipitation decrease and a subsequent expansion primarily due to surface warming, while global very wet areas (PDSI > +3.0) declined slightly during the 1980s. Together, the global land areas in either very dry or very wet conditions have increased from ~20% to 38% since 1972, with surface warming as the primary cause after the mid-1980s. These results provide observational evidence for the increasing risk of droughts as anthropogenic global warming progresses and produces both increased temperatures and increased drying.