This study evaluates the dam water-supply capacity in Korea using the water shortage index. The water-shortage index (SI) and generalized water-shortage index (GSI) used in this study are evaluated and modified slightly by considering both the damage cost due to water-supply failure and the construction cost of water-supply systems in Korea. The modified indices are then applied for performance evaluation of 16 multipurpose dams in Korea, whose results are evaluated using different units: each dam, each river basin, and all dams. In the analysis of the dam level and basin level, water-supply problems are detected in several dams and in some river basins. However, the SI and GSI estimated for all dams are found to be lower than 1. This result indicates that, even though the total amount of storage capacity is enough to satisfy the design supply, water resources are not well spatially distributed in Korea. It is also found that the modified indices are valid to describe the performance of each dam in water deficient regions during occurrence years of major droughts. In conclusion, the SI and GSI can offer alternative ways of evaluating dam water supply under different environmental conditions and potentially help determine optimal water-storage capacity of dams.