Importance of utilizing chemical desiccants to simulate terminal drought effects is gradually increasing. In the present study, a potassium iodide (KI)-simulated terminal drought stress was imposed during the full bloom (R2), pod elongation (R4), and seed initiation (R5) stages of soybean; the KI-induced desiccation effects were assessed at 1, 3, and 5 d after spraying (DASP). Plants responded to KI-simulated terminal drought stress within 1 DASP of KI-treatment, in terms of photosynthetic and transpiration rates. Seed initiation stage was found to be comparatively tolerant to KI-induced desiccation, with respect to chlorophyll degradation and PSII efficiency, which correlated well with the high hexose accumulation during this period. The present study provides a basic understanding regarding the stage-specific responses of soybean towards KI-simulated terminal drought, with respect to photosynthetic performance and sugar status and a correlation between the two traits, which could be useful for developing terminal drought-tolerant varieties.