To help the decision making process and reduce climate change impacts, hydrologically-based drought indices have been used to determine drought severity in the Tarim River Basin (TRB) over the past decades. As the major components of the surface water balance, however, the irrigation process and reservoir operations have not been incorporated into drought indices in previous studies. Therefore, efforts are needed to develop a new agricultural drought index, which is based on the Variable Infiltration Capacity (VIC) model coupled with an irrigation scheme and a reservoir module. The new drought index was derived from the simulated soil moisture data from a retrospective VIC simulation from 1961 to 2007 over the irrigated area in the TRB. The physical processes in the coupled VIC model allow the new agricultural drought index to take into account a wide range of hydrologic processes including the irrigation process and reservoir operations. Notably, the irrigation process was found to dominate the surface water balance and drought evolution in the TRB. Furthermore, the drought conditions identified by the new agricultural drought index presented a good agreement with the historical drought events that occurred in 1993–94, 2004, and 2006–07, respectively. Moreover, the spatial distribution of coupled VIC model outputs using the new drought index provided detailed information about where and to what extent droughts occurred.