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The severity and intensity of drought are predicted to worsen under expected changing climatic conditions. The ability of communities to adapt and be resilient during a severe event such as drought depends on the capacity of the area. This study looks at the capacity of regional communities to adapt during a period of severe condition, using a case study of the Murray–Darling Basin in Southeast Australia during the Millennium drought. Using principal component analysis methodology, this study creates several indexes to summarise important indicators for socioeconomic adaptive capacity. Results indicate that that the adaptive capacity measure works well in the areas near cities. On the other hand, although areas away from cities were more likely to suffer lower adaptive capacity after the drought, the areas with higher capacity index seem to be able to maintain their position in the quintile or at least not drop further down into lower quintile even when compared to the area near the city.