Global warming has resulted in increasingly frequent and severe drought and/or precipitation events. Severe drought limits crop water availability and impacts agricultural productivity and socioeconomic development. To quantify drought-induced yield loss during the main crop stages in Liaoning province, China, aspects of drought episodes (magnitude, duration, and frequency) were investigated during the period 1960–2015 using the Standardized Precipitation Index (SPI) and the Standardized Precipitation Evapotranspiration Index (SPEI), respectively. Then the relationship between the SPI/SPEI and the standardized yield residuals series (SYRS), and the drought-induced yield loss were analyzed for maize, rice, sorghum, soybean, and millet. Liaoning underwent a province-wide increase in temperature, reduced precipitation, and reduced reference crop evapotranspiration. As expected, Liaoning experienced province-wide meteorological drying trends during the main crop growth stages, while the drought frequency, duration, and magnitude were not as serious as revealed by using the SPI. As compared to the SPI, the SPEI considering potential evapotranspiration explained 39%–78% yield variability of SYRS and evaluated the drought-induced yield loss more accurately. The increased drought frequency mainly affected the rain-fed crops (maize, sorghum, soybean, and millet), while it did not reduce irrigated rice production. No major impact was exerted on the rain-fed crops caused by mild drought. However, severe drought (SPEI < −1.0) markedly reduced yield performance, in particular at the anthesis-silking stage for maize, the jointing-booting stage for sorghum, the flowering-podding stage for soybean, and the sowing-milking stage for millet. It is concluded that the SPEI is a more useful measure for the identification of drought episodes and the assessment of drought impact on agricultural production in Liaoning province.