After a period of drought and economic depression during the 1890's, good times returned after 1900. Farmers became prosperous again as prices for crops rose and rainfall was plentiful. Some of the Indian reservation lands were opened for settlement under a system in which claims were drawn by lot. Many farms were abandoned, however, when a severe drought hit the state, 1910–11.

Prosperity returned during World War I as crop prices went up and agricultural products were in great demand. Much legislation beneficial to farmers was enacted during the administration of Governor Peter Norbeck (1917–21). Prosperous conditions generally prevailed throughout the 1920's.

During the 1930's South Dakota suffered badly. In addition to the depression that affected the entire nation, the state was plagued by one of the worst periods of drought in its history. Dust storms, called black blizzards , ruined thousands of acres of farmland by blowing away the topsoil. Swarms of grasshoppers damaged crops. The state recovered somewhat during World War II, as farm products were again in demand.

In the postwar era, South Dakota worked to diversify its economy, still mainly dependent on agriculture. The federal government built several dams in the state to help control floods and to provide hydroelectric power and water for irrigation. Despite increasing industrialization in the 1960's and early 1970's, the population declined as many people moved to urban areas in other states. Indian rights became an issue in 1973 when militant Sioux occupied the hamlet of Wounded Knee to publicize their demands In the mid-1970's, the state suffered a lengthy drought, which caused severe economic problems. Conditions had improved, however, by the decade's end.

In 1979 the federal government awarded Sioux tribes in the state more than $100 million for the loss of the Black Hills region in the 19th century. During the 1980's, agriculture, the mainstay of the economy, suffered from a protracted recession. According to the 2000 census, the state's population increased 8.5 per cent during the preceding decade.