Floods have caused tremendous economic, societal and ecological losses in the Yangtze River Basin (YRB) of China. To reduce the impact of these disasters, it is important to understand the variables affecting the hydrological state of the basin. In this study, we used Gravity Recovery and Climate Experiment (GRACE) satellite data, flood potential index (FPI), precipitation data (Tropical Rainfall Measuring Mission, TRMM 3B43), and other meteorological data to generate monthly terrestrial water storage anomalies (TWSA) and to evaluate flood potential in the YRB. The results indicate that the basin contained increasing amounts of water from 2003 to 2014, with a slight increase of 3.04 mm/year in the TWSA. The TWSA and TRMM data exhibit marked seasonal characteristics with summer peaks and winter dips. Estimates of terrestrial water storage based on GRACE, measured as FPI, are critical for understanding and predicting flooding. The 2010 flood (FPI~0.36) was identified as the most serious disaster during the study period, with discharge and precipitation values 37.95% and 19.44% higher, respectively, than multi-year average values for the same period. FPI can assess reliably hydrological extremes with high spatial and temporal resolution, but currently, it is not suitable for smaller and/or short-term flood events. Thus, we conclude that GRACE data can be effectively used for monitoring and examining large floods in the YRB and elsewhere, thus improving the current knowledge and presenting potentially important political and economic implications.