The objective of this paper is to understand the response of upper tropospheric (UT) clouds and water vapour (H2O) to sea surface temperature (SST) changes over the Indian Ocean. UT ice water content (IWC) and H2O observed by Aura Microwave Limb Sounder (MLS) show dominant dipole mode variability over the Indian Ocean. This is characterized by the oscillating differences between the western and eastern Indian Ocean (WIO and EIO) with greater amplitude in September, October and November (SON) as compared with other seasons. We denote δX = X_WIO − X_EIO, with X being H2O and IWC at three UT levels (215, 147 and 100 hPa) or SST, following the documented definition for Indian Ocean Dipole (IOD). We find a strong positive correlation between δIWC at the three UT levels and δSST, and a relatively weak positive correlation between δIWC and Niño 3.4 SST, suggesting that the UT clouds over the Indian Ocean are largely controlled by the local thermally driven circulation, while teleconnection to El Niño and Southern Oscillation (ENSO) plays a secondary role. The change per degree of δSST for δIWC in SON is 5.5 mg m−3 C−1 at 215 hPa, 1.6 mg m−3 C−1 at 147 hPa and 0.13 mg m−3 C−1 at 100 hPa (i.e. 96% C−1, 87% C−1 and 46% C−1 increase at 215, 147 and 100 hPa, respectively). We find 36% C−1 increase in δH2O at 215 hPa with increasing δSST, associated with a sharp contrast in convective strength (indicated by δIWC) over the Indian Ocean region. On the other hand, δH2O at 100 hPa decreases with increasing δSST because cold temperature is observed above convective clouds and 100 hPa H2O is largely controlled by temperature. The Niño 3.4 SST has a relatively weak positive (negative) correlation with δH2O at 215 hPa (100 hPa).