Although molecular research has contributed significantly to our knowledge of familial neurohypophyseal diabetes insipidus (FNDI) for more than a decade, the genetic background and the pathogenesis still is not understood fully. Here we provide a review of the genetic basis of FNDI, present recent progress in the understanding of the molecular mechanisms underlying its development, and survey diagnostic and treatment aspects. FNDI is, in 87 of 89 kindreds known, caused by mutations in the arginine vasopressin (AVP) gene, the pattern of which seems to be largely revealed as only few novel mutations have been identified in recent years. The mutation pattern, together with evidence from clinical, cellular, and animal studies, points toward a pathogenic cascade of events, initiated by protein misfolding, involving intracellular protein accumulation, and ending with degeneration of the AVP producing magnocellular neurons. Molecular research has also provided an important tool in the occasionally difficult differential diagnosis of DI and the opportunity to perform presymptomatic diagnosis. Although FNDI is treated readily with exogenous administration of deamino-D-arginine vasopressin (dDAVP), other treatment options such as gene therapy and enhancement of the endoplasmic reticulum protein quality control could become future treatment modalities.