Ah, drought! We know all about that subject here in Oz. We're in something like the 5th year of a ripper drought!
But back to the micro level: I recently bought a new (little) Victorian terrace in an inner-urban area of the city of Melbourne. It has a good-sized front & back yard. I'm now in the process of removing unsuitable (& water-guzzling) plants, allowing the lawn to slowly die, due to the serious water shortage & have begun replanting with local native plants (like the 3 bottle brushes that are thriving in the horrendous heat.)
When the autumn comes I plan to make the biggish lawn smaller, by extending the garden & planting more native plants & others that are "at home" in the conditions.
If I learnt nothing else from my previous home & garden it's not to fight the the climate, the type of soil you have to work with .... A plant that is happy with the conditions will flourish & LOOK much more attractive than an "exotic" that struggles to survive in the situation.
And lawns: native grasses, definitely, if you want them at all. Much of the waste & garden water-guzzling in the city, I believe, is people trying to maintain a lawn that looks like it's been transplanted from straight from England. IMO this is an extremely thoughtless & anti-social thing to do during an extended period of drought. You can tell whose selfish by the lushness of their lawns. Why not let them just die back (if you want to keep them) & regenerate when the rains return? A small inconvenience at such a critical time.