Water use efficiency (WUE) measures the tradeoff between carbon uptake and water consumption in terrestrial ecosystems. It remains unclear how the responses of WUE to drought vary with drought severity. We assessed the spatio-temporal variations of ecosystem WUE and its responses to drought for terrestrial ecosystems in Southwest China over the period 2000–2017. The annual WUE values varied with vegetation type in the region: Forests (3.25 gC kg−1H2O) > shrublands (2.00 gC kg−1H2O) > croplands (1.76 gC kg−1H2O) > grasslands (1.04 gC kg−1H2O). During the period 2000–2017, frequent droughts occurred in Southwest China, and overall, drought had an enhancement effect on WUE. However, the effects of drought on WUE varied with vegetation type and drought severity. Croplands were the most sensitive to drought, and slight water deficiency led to the decline of cropland WUE. Over grasslands, mild drought increased its WUE while moderate and severe drought reduced its WUE. For forests and shrublands, mild and moderate drought increased their WUE, and only severe drought reduce their WUE, indicating that these ecosystems had stronger resistance to drought. Assessing the patterns and trends of ecosystem WUE and its responses to drought are essential for understanding plant water use strategy and informing ecosystem water management.