Drought and water stress monitoring plays an important role in the management of water resources, especially during periods of extreme climate conditions. Here, a data fusion‐based drought index (DFDI) has been developed and analyzed for three different locations of varying land use and climate regimes in Australia. The proposed index comprehensively considers all types of drought through a selection of indices and proxies associated with each drought type. In deriving the proposed index, weekly data from three different data sources (OzFlux Network, Asia‐Pacific Water Monitor, and MODIS‐Terra satellite) were employed to first derive commonly used individual standardized drought indices (SDIs), which were then grouped using an advanced clustering method. Next, three different multivariate methods (principal component analysis, factor analysis, and independent component analysis) were utilized to aggregate the SDIs located within each group. For the two clusters in which the grouped SDIs best reflected the water availability and vegetation conditions, the variables were aggregated based on an averaging between the standardized first principal components of the different multivariate methods. Then, considering those two aggregated indices as well as the classifications of months (dry/wet months and active/non‐active months), the proposed DFDI was developed. Finally, the symbolic regression method was used to derive mathematical equations for the proposed DFDI. The results presented here show that the proposed index has revealed new aspects in water stress monitoring which previous indices were not able to, by simultaneously considering both hydrometeorological and ecological concepts to define the real water stress of the study areas.