Satellite remote sensing provides a synoptic view of the land and a spatial context for measuring drought impacts, which have proved to be a valuable source of spatially continuous data with improved information for monitoring vegetation dynamics. Many studies have focused on detecting drought effects over large areas, given the wide availability of low-resolution images. In this study, however, the objective was to focus on a smaller area (1085 km2) using Landsat ETM+ images (multispectral resolution of 30 m and 15 m panchromatic), and to process very accurate Land Use Land Cover (LULC) classification to determine with great precision the effects of drought in specific classes. The study area was the Tortugas-Tepezata sub watershed (Moctezuma River), located in the state of Hidalgo in central Mexico. The LULC classification was processed using a new method based on available ancillary information plus analysis of three single date satellite images. The newly developed LULC methodology developed produced overall accuracies ranging from 87.88% to 92.42%. Spectral indices for vegetation and soil/vegetation moisture were used to detect anomalies in vegetation development caused by drought; furthermore, the area of water bodies was measured and compared to detect changes in water availability for irrigated crops. The proposed methodology has the potential to be used as a tool to identify, in detail, the effects of drought in rainfed agricultural lands in developing regions, and it can also be used as a mechanism to prevent and provide relief in the event of droughts.