The Gravity Recovery and Climate Experiment (GRACE) provides quantitative measures of terrestrial water storage (TWS) change. GRACE data show a significant decrease in TWS in the lower (southern) La Plata river basin of South America over the period 2002-2009, consistent with recognized drought conditions in the region. GRACE data reveal a detailed picture of temporal and spatial evolution of this severe drought event, which suggests that the drought began in lower La Plata in around austral spring 2008 and then spread to the entire La Plata basin and peaked in austral fall 2009. During the peak, GRACE data show an average TWS deficit of ∼12 cm (equivalent water layer thickness) below the 7 year mean, in a broad region in lower La Plata. GRACE measurements are consistent with accumulated precipitation data from satellite remote sensing and with vegetation index changes derived from Terra satellite observations. The Global Land Data Assimilation System model captures the drought event but underestimates its intensity. Limited available groundwater‐level data in southern La Plata show significant groundwater depletion, which is likely associated with the drought in this region. GRACE‐observed TWS change and precipitation anomalies in the studied region appear to closely correlate with the ENSO climate index, with dry and wet seasons corresponding to La Niña and El Niño events, respectively.