Floods frequently occur in Nigeria. The catastrophic 2012 flood in Nigeria claimed 363 lives and affected about seven million people. A total loss of about 2.29 trillion Naira (7.2 billion US Dollars) was estimated. The effect of flooding in the country has been devastating because of sparse to no flood monitoring, and a lack of an effective early flood warning system in the country. Here, we evaluated the efficacy of using the Gravity Recovery and Climate Experiment (GRACE) terrestrial water storage anomaly (TWSA) to evaluate the hydrological conditions of the Lower Niger River Basin (LNRB) in Nigeria in terms of precipitation and antecedent terrestrial water storage prior to the 2012 flood event. Furthermore, we accessed the potential of the GRACE-based flood potential index (FPI) at correctly predicting previous floods, especially the devastating 2012 flood event. For validation, we compared the GRACE terrestrial water storage capacity (TWSC) quantitatively and qualitatively to the water budget of TWSC and Dartmouth Flood Observatory (DFO) respectively. Furthermore, we derived a water budget-based FPI using Reager’s methodology and compared it to the GRACE-derived FPI quantitatively. Generally, the GRACE TWSC estimates showed seasonal consistency with the water budget TWSC estimates with a correlation coefficient of 0.8. The comparison between the GRACE-derived FPI and water budget-derived FPI gave a correlation coefficient of 0.9 and also agreed well with the flood reported by the DFO. Also, the FPI showed a marked increase with precipitation which implies that rainfall is the main cause of flooding in the study area. Additionally, the computed GRACE-based storage deficit revealed that there was a decrease in water storage prior to the flooding month while the FPI increased. Hence, the GRACE-based FPI and storage deficit when supplemented with water budget-based FPI could suggest a potential for flood prediction and water storage monitoring respectively.