Lithium is widely used to treat bipolar disorder. Nephrogenic diabetes insipidus (NDI) is the most common adverse effect of lithium and occurs in up to 40% of patients. Renal lithium toxicity is characterized by increased water and sodium diuresis, which can result in mild dehydration, hyperchloremic metabolic acidosis and renal tubular acidosis. The concentrating defect and natriuretic effect develop within weeks of lithium initiation. After years of lithium exposure, full-blown nephropathy can develop, which is characterized by decreased glomerular filtration rate and chronic kidney disease. Here, we review the clinical and experimental evidence that the principal cell of the collecting duct is the primary target for the nephrotoxic effects of lithium, and that these effects are characterized by dysregulation of aquaporin 2. This dysregulation is believed to occur as a result of the accumulation of cytotoxic concentrations of lithium, which enters via the epithelial sodium channel (ENaC) on the apical membrane and leads to the inhibition of signaling pathways that involve glycogen synthase kinase type 3beta. Experimental and clinical evidence demonstrates the efficacy of the ENaC inhibitor amiloride for the treatment of lithium-induced NDI; however, whether this agent can prevent the long-term adverse effects of lithium is not yet known.