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The purpose of this study is to improve our understanding of temperature and precipitation effects on the Palmer Drought Severity Index (PDSI). Both theoretical and observational analyses were applied to separate and compare temperature and precipitation effects on PDSI. The results showed that because of the dependence of PDSI on the ‘climatologically appropriate rainfall’, which is a function of time and varies with surface air temperature, the PDSI can be equally affected by temperature and precipitation, when both have similar magnitudes of anomalies. Calculations using observational data further illustrated the temperature influence on PDSI in different climate regions in the central United States. The temperature effect on PDSI complicates the usage of the index in interpreting precipitation anomalies and its application in inferring precipitation variations, particularly from reconstructed PDSI.