The drought has forced farmers to fallow their fields, put thousands of agricultural workers out of work, and led to conservation measures in cities throughout the state, which is the nation's top agricultural producer.
Agriculture losses could reach $2.8 billion this year and cost 95,000 jobs, said Lester Snow, the state water director.
"This drought is having a devastating impact on our people, our communities, our economy and our environment, making today's action absolutely necessary," the Republican governor said in his statement.
Mandatory rationing is an option if the declaration and other measures are insufficient.
State agencies must now provide assistance for affected communities and businesses and the Department of Water Resources must protect supplies, all accompanied by a statewide conservation campaign.
Three dry winters have left California's state- and federally operated reservoirs at their lowest levels since 1992.
Federal water managers announced last week that they would not deliver any water this year to thousands of California farms, although that could change if conditions improve. The state has said it probably would deliver just 15 percent of the water contractors have requested this year.
"Exceptional" Drought In Lone Star State
Across Texas, the nation's No. 2 agricultural state, drought conditions are evaporating stock tanks, keeping many crop farmers from planting into long-parched soil, forcing cattle producers to cull their herds, and dropping water levels in state lakes.
Despite hurricanes Dolly, Gustav and Ike soaking Texas in 2008, almost every part of the state - nearly 97 percent - is experiencing some drought, according to the most recent U.S. Drought Monitor map, released Feb. 26.
Parts of Central Texas and the Hill Country - more that 8 percent of the state - are not only in exceptional drought - the most severe stage of dryness - but they are now the driest region in the country and the driest they have been since 1918. It is the only place in the U.S. experiencing exceptional drought.
San Antonio has gotten only 16.67 inches of rain since September 2007, its driest 17 months ever and about 28 inches below normal.
November, December and January were the driest statewide since 1971 for that three-month span, the fourth-driest on record. Texas averaged .32 inches of rain in January, the fourth driest in history, and about one-fifth the normal monthly total.
Statewide numbers for February have not yet been compiled.
"February's gotten nothing but worse," said Victor Murphy, a meteorologist with the National Weather Service in Fort Worth. "It's going to be the same gloomy numbers."
Some local numbers were available, though, and they show that none of the state's 25 largest cities got even half the normal rainfall between Dec. 1 and Feb. 25.
"That's another example of how bad things are," Murphy said. "Things just continue to get worse."
There is, however, a glimmer of hope. Forecasters say it appears the La Nina weather pattern that's kept Texas dry may be breaking up over the central Pacific Ocean.
"It looks like it's starting to weaken," Murphy said. "With that being the case, May and June, our normal rainy months, we might have something positive to look forward to."
If those rains don't materialize, the cost to agriculture could be enormous.
"It's too preliminary" to estimate what the losses could be this year, said Travis Miller, drought specialist with Texas AgriLife Extension Service.
If the recent past is any indication, agriculture losses could top 2006. Drought-related crop and livestock losses were the state's worst ever for a single year, totaling $4.1 billion. Numbers on the latest drought map are worse than those for same week of 2006.
What does that mean to ranchers?
Most started culling their herds a few months ago and that will probably continue, Miller said.
Central Texas cattle raiser Gerry Shudde, who during the 2006 drought cut his small herd in half because he could no longer feed them, has six stock tanks for watering his cattle. Four of those tanks are already dry and two others, which were dug deeper after the 1950s drought, are nearly empty.
He normally plants oats and other feed grasses in his pastures to help feed his cattle during the winter.
This year, though, "there's not a seed come up on any of them yet," he said. "We go through these (droughts). It's just time for this to end."
Miller said most ranchers use supplemental feed - hay and other grazing grasses cut and harvested months ago - during winter months. This year, there is a big difference.
"It's not supplemental feed," he said. "It is the feed."