Drought is one of the main causes of food insecurity, malnutrition and poverty. It is therefore important to understand the perception of farmers on socioeconomic and environmental impacts of drought and the strategies employed to manage it. Using data collected from 301 smallholder households in Thaba Nchu, Free State Province, the study contributes to three perspectives: analysing the perceived socio-economic and environmental impact of drought, examining the determinants of the perceived impact, and identifying factors affecting the intensity of drought-risk management practices used by smallholder farming households. Using 11 indicators as a measure of perceived impact, the findings from the principal component analysis (PCA) revealed three main dimensions of perceived drought impact: economic, environmental and social impacts. Different socio-economic and institutional factors have a different influence on the three dimensions. In addition, factors such as age, household size, non-farm work and extension services are significant in determining the intensity of drought-risk management strategies implemented by farmers in the study area. The study therefore recommends that climate risk management be integrated into the provision of extension services, particularly in drought-prone areas such as the Free State Province. Encouraging farmers to engage in non-agricultural economic activities is also crucial, as this can serve as insurance against events such as drought.