Drought poses increasing challenges to the ecological integrity and societal functions of grasslands. This review synthesizes recent advances in understanding how drought impacts grassland vegetation across biological and social-ecological levels. We highlight drought’s impact on plant traits and community composition, which reduces productivity and stability, with an emphasis on belowground traits. We further examine how previous drought can influence subsequent vegetation responses through ecological memory, whereas recurrent droughts may generate cumulative effects over time. Beyond ecological processes, drought can also cascade through social-ecological systems, affecting pastoral livelihoods and associated policy responses. We propose a perspective linking ecological memory, vegetation dynamics, and social-ecological feedback across levels under drought in grasslands. Future research priorities include coordinated experiments on sequential droughts, trait-based monitoring using remote sensing, and model-data integration to improve predictions of grassland vulnerability under increasing drought. These insights are important for sustaining grassland services in an increasingly arid world.