Droughts can have an impact on forest functioning and production, and even lead to tree mortality. However, drought is an elusive phenomenon that is difficult to quantify and define universally. In this study, we assessed the performance of a set of indicators that have been used to describe drought conditions in the summer months (June, July, August) over a 30-year period (1981–2010) in Finland. Those indicators include the Standardized Precipitation Index (SPI), the Standardized Precipitation–Evapotranspiration Index (SPEI), the Soil Moisture Index (SMI), and the Soil Moisture Anomaly (SMA). Herein, regional soil moisture was produced by the land surface model JSBACH of the Max Planck Institute for Meteorology Earth System Model (MPI-ESM). Results show that the buffering effect of soil moisture and the associated soil moisture memory can impact on the onset and duration of drought as indicated by the SMI and SMA, while the SPI and SPEI are directly controlled by meteorological conditions. In particular, we investigated whether the SMI, SMA and SPEI are able to indicate the Extreme Drought affecting Forest health (EDF), which we defined according to the extreme drought that caused severe forest damages in Finland in 2006. The EDF thresholds for the aforementioned indicators are suggested, based on the reported statistics of forest damages in Finland in 2006. SMI was found to be the best indicator in capturing the spatial extent of forest damage induced by the extreme drought in 2006. In addition, through the application of the EDF thresholds over the summer months of the 30-year study period, the SPEI and SMA tended to show more frequent EDF events and a higher fraction of influenced area than SMI. This is because the SPEI and SMA are standardized indicators that show the degree of anomalies from statistical means over the aggregation period of climate conditions and soil moisture, respectively. However, in boreal forests in Finland, the high initial soil moisture or existence of peat often prevent the EDFs indicated by the SPEI and SMA to produce very low soil moisture that could be indicated as EDFs by the SMI. Therefore, we consider SMI is more appropriate for indicating EDFs in boreal forests. The selected EDF thresholds for those indicators could be calibrated when there are more forest health observation data available. Furthermore, in the context of future climate scenarios, assessments of EDF risks in northern areas should, in addition to climate data, rely on a land surface model capable of reliable prediction of soil moisture.