Accurate drought assessment and monitoring in ecologically sensitive and data-scarce mountainous watersheds is crucial for sustainable water resource management under climate change. This study investigates drought variability in the Portaikos watershed (Thessaly, Central Greece) using the Standardized Precipitation Index (SPI), a widely applied drought index, at multiple timescales (12-month and 6-month wet and dry seasons). Calculations were performed from two long-term ground stations, Stournareika (1959–2017) and Elati (1949–2017), and compared with SPI values derived from ERA5-Land, a high-resolution global reanalysis dataset. In Stournareika, the 12-month SPI revealed extreme droughts in 1991–1992 (SPI = –3.29) and 2006–2007 (SPI = –2.48). ERA5-Land detected the 2006–2007 event and another in 2000–2001, while downgrading the 1991–1992 drought to severe. Agreement in drought class between ground and ERA5 data was 45% overall, with ERA5 showing wetter conditions in 25% of years and drier conditions in 30%. Agreement rose to 55% in the wet season (October–March) but dropped to 28% in the dry season (April–September), suggesting that ERA5 performs better under wetter conditions. In Elati, the 2006–2007 drought appeared only moderate based on 12-month SPI, while ground data highlighted multiple severe to extreme events between 1960 and 2004. ERA5 classifications matched 33% of years, while 31% appeared wetter and 36% drier. The 6-month SPI confirmed similar discrepancies, with reduced ERA5 performance likely influenced by its coarser resolution and local topographic effects in this high-relief watershed. These findings highlight the strong spatial variability of drought signals and the limitations of reanalysis data in complex terrains. Nonetheless, ERA5 remains a valuable resource where ground observations are lacking, provided its uncertainties are acknowledged. Importantly, the results align with broader evidence of intensifying and spatially heterogeneous droughts across the Mediterranean region.