Abstract. As a natural disaster and inevitable phenomenon, droughts are frequently seen in vast areas of different countries, particularly in areas with hot and dry climates. It has resulted in heavy economic, social, and environmental losses. Undoubtedly, the first step to cope with droughts and their consequences is to have an accurate understanding of droughts and their effects on different aspects by specifying the related strategies and approaches in this regard. Given the importance of this issue, the present study was conducted to investigate how to model farmers' perception of consequences of drought through structural equation modeling in Birjand Township, Iran. All farmer households living in rural areas of Birjand (a city in the Iranian province of Southern Khorasan) composed the statistical population of this study (N=6057). As many as 200 households were chosen for the study by using Bartlett's table. In total, 20 villages were considered as the target districts using stratified random sampling. The results showed that the most important consequences of droughts understood by the farmers are their economic (0.341), environmental (0.261), and social (0.138) consequences. The highest indirect effects on the farmers' perception of consequences of drought in Birjand were: reduced income (0.286), increased bank debts (0.272), reduced purchasing power (0.265), and the wells, aqueducts and springs that have dried (0.224) respectively. In this regard, measures such as supporting the investment and entrepreneurship, granting banking facilities and credits, governmental oversight on water withdrawals from groundwater sources, development of infrastructures and irrigation and water supply networks, reuse of wastewater, identification and promotion of products compatible with saline and unconventional waters, development of support services and social security for rural communities and development and promotion of drought insurance are proposed in order to reduce the consequences of drought.