Studies identifying mechanisms regulating biodiversity are uncommon, yet necessary for management of ecological systems.  In stream fish assemblages worldwide, diversity generally increases as one moves downstream.  Prior studies of this phenomenon focus on the downstream portions of the gradient, and infer that higher downstream fish diversity is produced by greater habitat diversity or food production in these reaches.  We quantified assemblage structure 2X annually between 1991 and 2004 in a permanent 100m site, and experimentally quantified critical velocities for the dominant species. There was a highly significant positive relationship (r2 = 0.73) between drought (measured by Palmer Drought Index) and fish diversity.  The high diversity in drought years was produced by species moving upstream into the study site.  Critical velocity estimates showed that residents could better withstand high flows than downstream migrants.  Stream temperature differed less than 1C between drought and non-drought years in both upstream and downstream sites.    Our study is one of the first experimental demonstrations of a mechanism capable of producing the downstream gradient in stream fish diversity.  The relationship between drought and biodiversity is counter-intuitive and argues for the preservation of natural flow regimes in Appalachian streams.