For farmers in the South Wollo Zone, drought has been one of the most devastating natural disasters, making better monitoring of agricultural drought with the aid of earth observation data essential. The main objective of this research is to characterize the spatiotemporal variation, frequency, and trends of agricultural drought from 2001 to 2021 using the earth observation-derived vegetation health index (VHI) and standardized precipitation evapotranspiration index (SPEI). The VHI and SPEI were developed using the following variables: potential evapotranspiration (MOD16A2GF), climatic hazards group infrared precipitation with stations (CHIRPS), surface temperature of the land and emissivity (MOD11A2), and normalized difference vegetation index (MOD13Q1 NDVI). The Mann–Kendall (MK) trends analysis and Pearson correlation were used to identify the trend and the relationship between VHI and SPEI. SPEI and VHI were validated using crop yield data. According to the findings, there were agricultural droughts of varying severity in 2002, 2004, 2009, 2010, 2014, and 2015. The results demonstrated a decreasing SPEI (87.5%) and VHI (57.4%) slope during July. The comparison between the SPEI and VHI was positive and significant on the seasonal scale (r = 0.56, p = 0.01). The regression analysis results showed that detrended crop yields agreed well with VHI (R2/r = 0.49/0.70, P < 0.01) and SPEI (R2/r = 0.34/0.58, P < 0.05). Hence, the findings of the present study illustrated the effectiveness and utility of the SPEI and VHI for agricultural drought evaluation, monitoring, and early warnings in the South Wollo administrative zone.