Osmotic homeostasis is a fundamental requirement for life. In general, the effector mechanisms that mediate cellular and extracellular osmoregulation in animals are reasonably well defined. However, at the molecular level, little is known about how animals detect osmotic and ionic perturbations and transduce them into regulatory responses. The nematode Caenorhabditis elegans provides numerous powerful experimental advantages for defining the genes and integrated gene networks that underlie basic biological processes. These advantages include a fully sequenced and well-annotated genome, forward and reverse genetic and molecular tractability, and a relatively simple anatomy. C. elegans normally inhabits soil environments where it is exposed to repeated osmotic stress. In the laboratory, nematodes readily acclimate to and recover from extremes of hypertonicity. We review recent progress in defining the molecular mechanisms that underlie osmosensing and associated signal transduction in C. elegans. Some of these mechanisms are now known to be highly conserved. Therefore, studies of osmosensing in nematodes have provided, and will undoubtedly continue to provide, new insights into similar processes in more complex organisms including mammals.