We estimate the effect of drought and opportunity to sell water to state-managed Drought Water Banks, on land fallowing patterns of rice farmers in three private surface water irrigation districts in Northern California. The analysis is based on 30 years (1984-2013) of spatial data derived from satellite data on fallowing decisions matched to highly detailed ownership data at the farm parcel level. We find that drought episodes, and the presence of a Drought Water Bank increase fallowed area and the likelihood to fallow. We examine the effect of each Drought Water Bank separately, finding significant differences among them. We also find that some water sale restrictions imposed by local or state authorities have significantly affected land fallowing. These findings have ramifications for water management in future California droughts.