This study develops a novel uncertainty quantification (UQ) method for cloud microphysical property retrievals using variance‐based decomposition and global sensitivity index. In this UQ framework, empirical orthogonal function (EOF) analysis is applied to the U.S. Department of Energy Atmospheric Radiation Measurement (ARM) ground‐based observations, which are the inputs for the cloud retrieval studied here. The principal components (PCs) in the EOF expansion are parameterized as random input variables, and hence, the input dimension is greatly reduced (up to a factor of 50), allowing large ensemble of random samplings. The EOF expansion improves the accuracy of the uncertainty estimation by taking into account the cross correlations in the input data profiles. This method enables a probabilistic representation of a retrieval process by adding normally distributed perturbations into PCs of sample means of input data profiles within a time window. Therefore, it effectively facilitates objective validation of climate models against cloud retrievals under a probabilistic framework for rigorous statistical inferences. Moreover, the variance‐based global sensitivity index analysis, part of this method, attributes the output uncertainties to each individual source, thus providing directions for improving retrieval algorithms and observation strategies. For demonstration, we apply this method to quantify the uncertainties of the ARM program's baseline cloud retrieval algorithm for an ice cloud case observed at the Southern Great Plains site on 9 March 2000.