A rare drought occurred from 1998 to 2002 across much of the Northern Hemisphere midlatitude regions. Using observational data and numerical models, we analyze the impact of this event on terrestrial ecosystem and the global carbon cycle. The biological productivity in these regions was found to decrease by 0.9 PgC yr-1 or 5% compared to the average of the previous two decades, in conjunction with significantly reduced vegetation greenness. The drought led to a land carbon release that is large enough to significantly modify the canonical tropically dominated ENSO response. An atmospheric inversion reveals that during the 1998--2002 drought period, Northern Hemisphere midlatitude changed from a 1980--1998 average of 0.7 PgC yr-1 carbon sink to nearly neutral to the atmosphere, while a forward model suggests a change of 1.3 PgC yr-1 in the same direction. This large CO2 source may explain the consecutive large increase in atmospheric CO2 growth rate of about 2 ppmv yr-1 in recent years, as well as the anomalous timing of events. This Northern Hemisphere CO2 anomaly was largely caused by reduced vegetation growth due to less precipitation, but also with significant contribution from higher temperature that directly increases respiration loss and indirectly further reduces soil moisture. Since the Northern Hemisphere midlatitude landscape has been significantly modified by agriculture, grazing, irrigation and fire suppression, the strong signature in the global carbon cycle of a drought initiated by changes in tropical oceanic temperatures is a remarkable manifestation of climate variability, with implications for carbon cycle response and feedback to future climate change.