The "Big Dry", a prolonged dry period in Australia from 1997 to 2009, dried out much of the Murray-Darling Basin (MDB) and resulted in large agricultural losses and degraded river ecosystems. Climate projections are that dry conditions in the MDB are likely to be more regular and severe than ever before, and recent policy initiatives are likely to reduce consumptive water use and redirect water to ecosystem management. This paper aims to develop an understanding of the interactions between water policy and irrigation practices by deriving lessons from drought management in irrigated agriculture of the MDB during the Big Dry, and furthermore, to draw out lessons to enhance the preparedness of irrigated agriculture for a future drier climate and reduced water availability. Reviews of irrigation farmers' practices, attitudes and capacity to manage during prolonged droughts in the MDB, and the evolution of agricultural water policy in Australia since 1990 were made. It is clear that farmers could be better prepared to deal with a drier climate if their water management practices, e.g. irrigation methods and soil moisture measuring tools are improved, if the impediments to the uncertainty of water allocation and low water availability could be overcome, and if well-targeted research and extension could assist farmers to use water more wisely. It is also clear that Australian water policy could be better prepared in terms of assisting irrigated agriculture to deal with a drier climate. Key areas are reduction of barriers and distortions to water trading, optimizing the environmental water allocation, and seeking mutual benefits between environmental water allocation and irrigated agriculture, improvement of the cost-effectiveness of investments in water supply infrastructure, facilitating carryover and capacity sharing at larger scales, and provision of accurate, accessible and useful water information at different scales. An approach to irrigation practice and water policy is proposed based on past experience and potential opportunities. The approach is a set of linked strategies for more robust agricultural production and a more sustainable environment under a drier climate and reduced water availability.