This study investigates the spatial-temporal dynamics of vegetation indices in olive orchards across two traditionally rainfed regions of the Iberian Peninsula, namely the "Trás-os-Montes" (TM) agrarian region in Portugal and the Badajoz (BA) province in Spain, in response to drought conditions. Using satellite-derived vegetation indices, derived from the Harmonized Landsat Sentinel-2 project (HLSL30), such as the Normalized Difference Moisture Index (NDMI) and Soil-Adjusted Vegetation Index (SAVI), this study evaluates the impact of drought periods on olive tree growing conditions. The Mediterranean Palmer Drought Severity Index (MedPDSI), specifically developed for olive trees, was selected to quantify drought severity, and impacts on vegetation dynamics were assessed throughout the study period (2015-2023). The analysis reveals significant differences between the regions, with BA experiencing more intense drought conditions, particularly during the warm season, compared to TM. Seasonal variability in vegetation dynamics is clearly linked to MedPDSI, with lagged responses stronger in the previous two-months. Both the SAVI and the NDMI show vegetation vigour declines during dry seasons, particularly in the years of 2017 and 2022. The findings reported in this study highlight the vulnerability of rainfed olive orchards in BA to long-term drought-induced stress, while TM appears to have slightly higher resilience. The study underscores the value of combining satellite-derived vegetation indices with drought indicators for the effective monitoring of olive groves and to improve water use management practices in response to climate change. These insights are crucial for developing adaptation measures that ensure the sustainability, resiliency, and productivity of rainfed olive orchards in the Iberian Peninsula, particularly under climate change scenarios.