Hydrological droughts are one of the most damaging disasters in terms of economic loss in central Vietnam and other regions of South-east Asia, severely affecting agricultural production and drinking water supply. Their increasing frequency and severity can be attributed to extended dry spells and increasing water abstractions for e.g. irrigation and hydropower development to meet the demand of dynamic socioeconomic development. Based on hydro-climatic data for the period from 1980 to 2013 and reservoir operation data, the impacts of recent hydropower development and other alterations of the hydrological network on downstream streamflow and drought risk were assessed for a mesoscale basin of steep topography in central Vietnam, the Vu Gia Thu Bon (VGTB) River basin. The Just Another Modelling System (JAMS)/J2000 was calibrated for the VGTB River basin to simulate reservoir inflow and the naturalized discharge time series for the downstream gauging stations. The HEC-ResSim reservoir operation model simulated reservoir outflow from eight major hydropower stations as well as the reconstructed streamflow for the main river branches Vu Gia and Thu Bon. Drought duration, severity, and frequency were analysed for different timescales for the naturalized and reconstructed streamflow by applying the daily varying threshold method. Efficiency statistics for both models show good results. A strong impact of reservoir operation on downstream discharge at the daily, monthly, seasonal, and annual scales was detected for four discharge stations relevant for downstream water allocation. We found a stronger hydrological drought risk for the Vu Gia river supplying water to the city of Da Nang and large irrigation systems especially in the dry season. We conclude that the calibrated model set-up provides a valuable tool to quantify the different origins of drought to support cross-sectorial water management and planning in a suitable way to be transferred to similar river basins.