Drought is one of the most important agricultural meteorological disasters in China, resulting in significant impacts on winter wheat growth and yield. Satellite remote sensing can provide real time and dynamic surface information and has become an effective tool for regional agricultural drought monitoring. In this study, the drought severity index (DSI) was first computed based on MODIS ET/PET and NDVI dataset from 2000 to 2012 for agricultural drought monitoring at prefecture-city level in winter wheat producing areas of both Shandong province and Henan province, and further evaluated the influence of agricultural drought on winter wheat yield during key phenological periods. The main conclusions from the study are as follows: the results from the Shandong province droughts occurring from September 2010 to February 2011 showed that DSI can not only monitor meteorological drought but can also reflect the spatial variations and temporal evolution for agricultural drought. Drought has varying impacts on winter wheat yield during different phenological stage of the growing season. Generally, the filling stage of winter wheat has the most important impact on winter wheat yield, during which drought induced soil water deficit affects the crops normal grouting intensity and results in reduction of winter wheat yield. The jointing stage follows and drought has negligible effect on winter wheat yield during the green up stage. The research can provide important reference for agricultural drought monitoring and drought impacts on crop yield in other agricultural regions.