It has been contended that during the 1997-2008 'Millennium' drought there was an unexpectedly large decline in runoff from some catchments in south-eastern Australia (SEA). Potter et al. (2011) suggested that across 34 unregulated catchments in SEA the area weighted reduction in streamflow during the drought was 46 percent. Sixty-five percent of this was attributed to reduction in annual rainfall and 7 percent to the direct or indirect effect of changes in average annual maximum temperature. The remaining 28 percent was unexplained residual; potentially due to changes in seasonality and inter-annual variability of rainfall; and/or anthropogenic change (i.e. in particular farm dams), change in vegetation or a change in dominant hydrological behaviour. In this study we aim to develop a better understanding of why the reductions in runoff under the recent drought have been so large and why the unexpected residual as computed by Potter et al. varied spatially. To accomplish this, 34 unimpaired catchments with long streamflow and climate records from New South Wales and Victoria were examined. For each catchment a range of hydro-metrological metrics was computed, including runoff, rainfall, runoff coefficient, daily percentiles of rainfall (P) and runoff (Q), slow-flow and quick-flow and non-linear hydrograph recession constants for each season and each year of observed records. Rainfall-runoff modelling was undertaken using the Sacramento model on 111 unimpaired catchments across SEA (calibrated between 1975 and 1996) and assessed model bias during the drought. A consistent pattern that emerged was that in southern SEA the catchments with low-relief and moderate rainfall (ie. 600 to 900 mm) consistently showed statistically significant reductions in runoff coefficient, daily runoff percentiles, slow-flow and hydrograph recession constants during the drought, while the higher relief, high rainfall (>900 mm) catchments in southern SEA did not. Yet all catchments in southern SEA experienced a similar reduction in mean annual rainfall during the drought (similar to 17 to 22 percent). Petrone et al. (2010) surmised that in south-west Western Australia, a new hydrological regime had developed in many catchments over the recent record and they attributed this to falling groundwater levels. We propose that in the low-relief, moderate rainfall catchments of southern SEA, relatively high groundwater levels may have amplified overland flow during pre-drought conditions by reducing the storage capacity of the unsaturated zone and by facilitating organised patterns of drainage and the connection of source areas of runoff as the soil wetted up during a rainfall event. Under a falling watertable, the storage capacity of the unsaturated zone increased, and hence saturation conditions were less likely to occur, and the connectivity of source areas was likely to be less organised. In the high relief, high-rainfall catchments, falling groundwater levels would have resulted in a reduction of groundwater baseflow to streams, but we contend that due to the higher relief of these catchments, groundwater levels do not act as a major control over the formation of areas of saturation or the organisation of soil moisture during an event. The high rainfall over the spring/summer of 2010-11 will allow us to test our hypothesis further. Future investigations will also focus on the role of farm dams in contributing to the unexpected decline in runoff during the drought. During drought conditions farm dams will intercept a greater proportion of flow than during wet conditions. Understanding how catchments behave in times of drought may provide insights into how best to adapt hydrological models to better simulate runoff under drier climates.