This study examines the economic effects of the 1976-77 California Drought with emphasis on the Central Valley. 1976-77 was the driest two-year period in California's recorded weather history and severe economic losses were expected. But increased use of groundwater and reallocation of surface water by farmers and State and Federal authorities reduced the effects on crop yields. Also, prices of farm products rose because of lower production. So that, while individual farmers were adversely affected, net farm income was more than $2.5 billion, only 9% below the record high income of $2.8 billion in 1974.