Iron (Fe) deficiency in alkaline soils, exacerbated by drought, collectively affects soybean health. However, the availability of Fe and the transcriptional changes associated with drought tolerance remain unclear in soybean. This study aimed to evaluate the physiological and transcriptional changes in Fiskeby IV, a drought-tolerant genotype that loses its resilience under simultaneous Fe deficiency and drought. In this growth incubator study, Fe deficiency and drought stress led to significant reductions in plant biomass, photosynthetic efficiency, and nutrient uptake in Fiskeby IV. Despite these disruptions, the photochemical efficiency of photosystem II remained stable, suggesting the activation of protective mechanisms to maintain essential photosynthetic functions. RNA-seq analysis highlighted a complex response, showing the upregulation of ethylene-responsive genes (Ethylene-response sensor 2, Ethylene-responsive TF018, Ethylene-responsive TF5) as well as the genes related to rhizosphere acidification (ATPase 1) and redox homeostasis (Glutaredoxin-3). It suggests that ethylene signaling and rhizosphere acidification may be responsive in coordinating Fe homeostasis and drought adaptation in soybean. On the flip side, combined stresses caused the downregulation of several genes related to nutrient uptake (nicotianamine transporter YSL1, ammonium transporter 2, sulfate transporter 3.4, and major facilitator family protein). In a targeted study, soybean plants supplemented with 1-aminocyclopropane-1-carboxylic acid (an ethylene precursor) showed significant improvements in morpho-physiological traits and Fe status under combined stress conditions. Furthermore, the ethylene precursor enhanced root flavonoid and rhizosphere siderophore levels, along with restoring the overall abundance of bacterial and fungal microbial cells under Fe deficiency and drought. It implies that elevated ethylene may modulate root exudates, enhance microbial recruitment, and promote a stress-resilient rhizosphere environment to help soybean plants cope with combined stresses. It underscores the role of targeting ethylene signaling that may facilitate Fe mobilization and microbial interactions to induce soybean tolerance to concurrent Fe deficiency and drought. This is the first report on the transcriptional response and Fe status requirement underlying drought tolerance in soybean, potentially guiding future strategies to improve combined stress resilience in legume crops.