The frequent occurrence of drought and the increasing severity of its impacts make the traditional emergency approach inadequate and call for a risk-management approach, particularly in order to reduce water shortages in water supply systems. This paper attempts to provide a review of criteria, methods and tools for the management of drought risk in water systems, beginning with a discussion of legislative and institutional frameworks for coping with drought; objectives and contents of drought-planning instruments (at strategic, tactical and emergency levels) are then discussed. The review focuses on: 1. the drought indices to be used for an effective monitoring and early warning system; 2. the methods for assessing the risk of water shortage due to drought; and 3. the measures for reducing societal vulnerability to droughts and mitigating their impacts. Better coordination of drought-preparedness planning tasks, adaptive operation of water supply systems to prevent severe shortages, and more extensive use of early drought warning are suggested. Further research needs are identified.