The Gravity Recovery and Climate Experiment (GRACE) twin satellites observe time variations in Earth's gravity field which yield valuable information about changes in terrestrial water storage (TWS). GRACE is characterized by low spatial (>150,000 km2) and temporal (>10 days) resolution but has the unique ability to sense water stored at all levels (including groundwater) systematically and continuously. The GRACE Data Assimilation System (DAS), based on the Catchment Land Surface Model (CLSM), enhances the value of the GRACE water storage data by enabling spatial and temporal downscaling and vertical decomposition into moisture components (i.e., groundwater, soil moisture, and snow), which individually are more useful for scientific applications. In this study, GRACE DAS was applied to North America, and GRACE-based drought indicators were developed as part of a larger effort to investigate the possibility of more comprehensive and objective identification of drought conditions by integrating spatially, temporally, and vertically disaggregated GRACE data into the U.S. and North American Drought Monitors. Previously, the drought monitors lacked objective information on deep soil moisture and groundwater conditions, which are useful indicators of drought. Extensive data sets of groundwater storage from U.S. Geological Survey monitoring wells and soil moisture from the Soil Climate Analysis Network were used to assess improvements in the hydrological modeling skill resulting from the assimilation of GRACE TWS data. The results point toward modest, but statistically significant, improvements in the hydrological modeling skill across major parts of the United States, highlighting the potential value of a GRACE-assimilated water storage field for improving drought detection.