1. Shallow groundwater aquifers regularly support drought refuges for water-dependent ecosystems. However, many aquifers are impacted by over-extraction and pollution, potentially degrading their ability to support groundwater-fed drought refuges. 2. We investigated the response of groundwater-connected riverine forests to a drought considered equivalent in intensity to those predicted under severe climate change for 2030. The drought's impact was investigated in an area where shallow groundwater resources are heavily exploited and polluted by salinization. 3. We used remotely sensed vegetation productivity (enhanced vegetation index) data from a long-term data set (2000–2011) at 475 riverine forest sites in the Campaspe catchment, south-eastern Australia. Generalized additive mixed models and boosted regression trees were used to model the relationship between groundwater and other environmental covariates with forest change during drought. 4. Models explained up to 44% of the variation in forest change during drought. Forests underwent the greatest declines in areas of high salinity (>6000 μS cm−1) associated with shallow groundwater depths (0–5 m). Conversely, forests in areas of lowest salinity (<2000 μS cm−1) and groundwater depths of more than 7·5 m showed the least decline during drought. 5. In landscapes where groundwater quality is not compromised, previous studies have shown that shallow groundwater provides important drought refuges and refugia. Here, we show that when groundwater salinization has occurred, forests connected to shallow groundwater are more vulnerable to drought. In effect, salinization reduces the capacity of groundwater-connected habitats to function as drought refuges. 6. Synthesis and applications. Currently, there is an emphasis on managing environmental flows to support freshwater ecosystems and associated forests under water stress. However, delivery of environmental water is restricted to areas within a linear stream network and there is often limited capacity to deliver environmental flows during drought. Alternatively, a focus on drought refuges and refugia and processes important for maintaining groundwater quality (e.g. catchment revegetation to reduce shallow groundwater salinization) may better allow drought effects to be managed across a catchment, without directly focusing on highly contested surface water resources.