Greenhouse experiments were conducted at the University of Helsinki, Department of Crop Husbandry in 1989 and 1990 to provide information on the effects of drought stress on the developmental rate of the panicle, formation and abortion of florets, and formation of yield components in two oat cultivars, both adapted to the northern marginal growing conditions. Moderate water deficit and severe drought stress did not affect the developmental rate of the panicle, but the pre-anthesis and post-anthesis architecture changed considerably; leaves unrolled later, the number of green leaves was lower, the internodes lengthened less, and the inflorescence was shorter as a consequence of water deficit. Drought stress decreased the number of fertile florets in the panicle significantly, in the lower clusters of branches in particular. In the cultivar “Puhti”, 57 % of the fertile florets aborted as a consequence of moderate drought stress and 89 % as a result of severe drought stress when compared to well-watered individuals, while in “Virma”, a cultivar of significantly higher yield potential, 80 °lo and 90 % of the fertile florets wilted, respectively. In addition, water deficit caused considerable losses in all the morphological characteristics measured. Further implications of these results for yield formation are discussed.