Alongside global warming, droughts are expected to increase in frequency, severity, and extent in the near future, which will likely result in significant impacts on forest growth, production, structure, composition, and ecosystem services. However, due to spatial and temporal characteristics, it is difficult to monitor and assess the potential effects of droughts. Remote sensing can provide an effective way to obtain real-time conditions of forests affected by drought and offer a range of spatial and temporal insights into drought-induced changes to forest ecosystem structure, function, and services. Remote sensing is rapidly developing as more satellites are launched. In situ and remotely sensed data fusion techniques have achieved notable success in assessing drought-induced damage to forests and carbon cycles. Even so, constraints still exist when using satellite data. The objectives of this review are to (1) briefly review existing data sources and methods of remote sensing; (2) synthesize current applications and contributions of remote sensing in monitoring and estimating impacts of droughts on forest ecosystems; and (3) highlight research gaps and future challenges.