The American Southwest has experienced a series of severe droughts interspersed with strong wet episodes over the past decades, prompting questions about future climate patterns and potential intensification of weather disruptions under warming conditions. Here we show that interannual hydroclimatic variability in this region has displayed a significant level of non-stationarity over the past millennium. Our tree ring-based analysis of past drought indicates that the Little Ice Age (LIA) experienced high interannual hydroclimatic variability, similar to projections for the 21st century. This is contrary to the Medieval Climate Anomaly (MCA), which had reduced variability and therefore may be misleading as an analog for 21st century warming, notwithstanding its warm (and arid) conditions. Given past non-stationarity, and particularly erratic LIA, a 'warm LIA' climate scenario for the coming century that combines high precipitation variability (similar to LIA conditions) with warm and dry conditions (similar to MCA conditions) represents a plausible situation that is supported by recent climate simulations. Our comparison of tree ring-based drought analysis and records from the tropical Pacific Ocean suggests that changing variability in El Niño Southern Oscillation (ENSO) explains much of the contrasting variances between the MCA and LIA conditions across the American Southwest. Greater ENSO variability for the 21st century could be induced by a decrease in meridional sea surface temperature gradient caused by increased greenhouse gas concentration, as shown by several recent climate modeling experiments. Overall, these results coupled with the paleo-record suggests that using the erratic LIA conditions as benchmarks for past hydroclimatic variability can be useful for developing future water-resource management and drought and flood hazard mitigation strategies in the Southwest.