17 January 2014
Last updated at 19:08 ET
The declaration by Governor Jerry Brown also means farmers will receive aid and more firefighters will be employed.
Mr Brown faced pressure to declare the drought as the state's largest reservoirs are at record low levels.
The dry conditions have been blamed on a wildfire that destroyed five homes north-east of Los Angeles on Thursday.
In a press conference on Friday, Mr Brown called on residents to cut back "at least 20%" on their water usage but said the move was voluntary.
"We can't make it rain, but we can be much better prepared for the terrible consequences that California's drought now threatens," Mr Brown said in a statement.
He added the declaration was a way to focus Californians on how serious the drought conditions were.
"We are in a unprecedented, very serious situation that people should pause and reflect on how dependent we are on the rain, nature and one other," he said on CNN.
Previous extremely dry years led to catastrophic wildfire seasons in California in 2003 and 2007.
"People say that the fire season is starting early, but I guess you could say it never ended," Tom Scott, a natural resources specialist with the University of California told the Associated Press news agency.
"If you live in the backcountry, come July you probably should be thinking about putting your valuables in storage."
Farmers in the US largest farm state were already being hit hard.
"I am a fifth-generation cattle rancher, and it has never been this bad ever in my lifetime," said Kevin Kester, 58.
His family's records show the area's previous worst drought was in the 1890s.
California declares drought as early wildfires rage
The
governor of California has declared a state-wide drought, urging
residents to conserve water in what could be the state's driest year on
record.
Mr Brown faced pressure to declare the drought as the state's largest reservoirs are at record low levels.
The dry conditions have been blamed on a wildfire that destroyed five homes north-east of Los Angeles on Thursday.
In a press conference on Friday, Mr Brown called on residents to cut back "at least 20%" on their water usage but said the move was voluntary.
"We can't make it rain, but we can be much better prepared for the terrible consequences that California's drought now threatens," Mr Brown said in a statement.
He added the declaration was a way to focus Californians on how serious the drought conditions were.
"We are in a unprecedented, very serious situation that people should pause and reflect on how dependent we are on the rain, nature and one other," he said on CNN.
Previous extremely dry years led to catastrophic wildfire seasons in California in 2003 and 2007.
"People say that the fire season is starting early, but I guess you could say it never ended," Tom Scott, a natural resources specialist with the University of California told the Associated Press news agency.
"If you live in the backcountry, come July you probably should be thinking about putting your valuables in storage."
Farmers in the US largest farm state were already being hit hard.
"I am a fifth-generation cattle rancher, and it has never been this bad ever in my lifetime," said Kevin Kester, 58.
His family's records show the area's previous worst drought was in the 1890s.
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