Drought monitoring is critical for managing agriculture and water and for triggering hazard mitigation activities. All of the commonly used drought indices generally use constant thresholds nationwide. However, constant drought thresholds (i.e., same thresholds for all locations and climate regions) may not properly reflect local conditions and impacts. Therefore, this study aims to develop impacts-based drought thresholds that are appropriate for drought monitoring in Ohio. We examined four commonly-used indices: Standardized Precipitation Index (SPI), Standardized Precipitation-Evapotranspiration Index (SPEI), Palmer’s Z-Index and Palmer Hydrological Drought Index (PHDI). Streamflow and corn yield are used as an indicator of hydrological and agricultural drought impacts. Correlation analysis was conducted to investigate the relationship between drought indices and drought impacts. Our results show that the constant drought thresholds used by the United States Drought Monitor (USDM) tend to systematically under-estimate drought severity in Ohio. The new drought thresholds can better characterize water and yield losses that are associated with severe drought in Ohio. This study provides a methodology for developing local impacts-based drought thresholds, and it can be easily applied to other regions to improve drought monitoring.