The CACTUS atmospheric Cherenkov telescope collaboration recently reported a gamma-ray excess from the Draco dwarf spheroidal galaxy. Draco features a very low gas content and a large mass-to-light ratio, suggesting as a possible explanation annihilation of weakly interacting massive particles (WIMPs) in the Draco dark-matter halo. We show that with improved angular resolution, future measurements can determine whether the halo is cored or cuspy, as well as its scale radius. We find the relevant WIMP masses and annihilation cross sections and show that supersymmetric models can account for the required gamma-ray flux. We compute for these supersymmetric models the resulting Draco gamma-ray flux in the GLAST energy range and the rates for direct neutralino detection and for the flux of neutrinos from neutralino annihilation in the Sun. We also discuss the possibility that the bulk of the signal detected by CACTUS comes from direct WIMP annihilation to two photons and point out that a decaying-dark-matter scenario for Draco is not compatible with the gamma-ray flux from the Galactic center and in the diffuse gamma-ray background.