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Though coarse in spatial resolution, the nearly all weather measurements from passive microwave sensors can help in improving the spatio‐temporal coverage of optical and thermal infrared sensors for monitoring vegetation changes on the land surface. This study demonstrates the use of vegetation optical depth (VOD) retrievals from the Soil Moisture Active Passive mission for capturing the vegetation alterations from the recent 2019 to 2020 Australian bushfires and drought. The impact of vegetation disturbances on terrestrial water budget is examined by assimilating the VOD retrievals into a dynamic phenology model. The results demonstrate that assimilating VOD observations lead to improved simulation of evapotranspiration, runoff, and soil moisture states. The study also demonstrates that the vegetation changes from the 2019 to 2020 Australian drought and fires led to significant modifications in the partitioning of evaporative and runoff fluxes, resulting in increased bare soil evaporation, reduced transpiration, and higher runoff. Plain Language Summary: Satellite remote sensing, provides the ability to obtain integrated assessments of vegetation changes on the land surface. In this study, we employ the vegetation optical depth (VOD) retrievals from the NASA SMAP mission for characterizing the recent 2019‐2020 Australian drought and bushfires. The results demonstrate that SMAP VOD retrievals are effective in capturing the vegetation alterations from the unprecedented fires and drought. The study also examined the associated impact of these changes on the hydrological cycle. The removal of vegetation impacted the components of evaporation, by reducing the transpiration and increasing the bare soil evaporation. The results show that the reduction in transpiration likely amplified the amount of precipitation that is converted to runoff. Key Points: Soil Moisture Active Passive vegetation optical depth (VOD) detects features of the 2019–2020 Australian bushfires and droughtVOD assimilation improves land surface states and fluxesThe vegetation changes from the 2019 to 2020 Australian fires and drought causes significant changes in the water budget partitioning [ABSTRACT FROM AUTHOR]