The Indonesian Throughflow (ITF) controls the oceanic flux of heat and salt between the Pacific and Indian Oceans and therewith plays an important role in modulating the meridional overturning circulation and low latitude hydrological cycle. Here, we report new sea surface temperature and aridity records from the west coast of Australia (IODP Site U1460), which allow us to assess the sensitivity of the eastern Indian Ocean to the major reorganization of Earth's climate that occurred during the Mid-Pleistocene Transition. Our records indicate glacial coolings at 1.55 and 0.65 million years ago that are best explained by a weakening of the ITF as a consequence of global sea level and tectonic changes. These coincide with the development of pronounced gradients in the carbon isotope composition of the different ocean basins and with substantial changes in regional aridity, suggesting that the restrictions of the ITF influenced both the evolution of global ocean circulation and the development of the modern hydrological cycle in Western Australia.