The present study demonstrates a key role for the oxysterol receptor liver X receptor β (LXRβ) in the etiology of diabetes insipidus (DI). Given free access to water, LXRβ(-/-) but not LXRα(-/-) mice exhibited polyuria (abnormal daily excretion of highly diluted urine) and polydipsia (increased water intake), both features of diabetes insipidus. LXRβ(-/-) mice responded to 24-h dehydration with a decreased urine volume and increased urine osmolality. To determine whether the DI was of central or nephrogenic origin, we examined the responsiveness of the kidney to arginine vasopressin (AVP). An i.p. injection of AVP to LXRβ(-/-) mice revealed a partial kidney response: There was no effect on urine volume, but there was a significant increase of urine osmolality, suggesting that DI may be caused by a defect in central production of AVP. In the brain of WT mice LXRβ was expressed in the nuclei of magnocellular neurons in the supraoptic and paraventricular nuclei of the hypothalamus. In LXRβ(-/-) mice the expression of AVP was markedly decreased in the magnocellular neurons as well as in urine collected over a 24-h period. The persistent high urine volume after AVP administration was traced to a reduction in aquaporin-1 expression in the kidney of LXRβ(-/-) mice. The LXR agonist (GW3965) in WT mice elicited an increase in urine osmolality, suggesting that LXRβ is a key receptor in controlling water balance with targets in both the brain and kidney, and it could be a therapeutic target in disorders of water balance.