Collecting ducts make up the distal-most tubular segments of the kidney, extending from the cortex, where they connect to the nephron proper, into the medulla, where they release urine into the renal pelvis. During water deprivation, body water preservation is ensured by the selective transepithelial reabsorption of water into the hypertonic medullary interstitium mediated by collecting ducts. The collecting duct epithelium forms tight junctions composed of barrier-enforcing claudins and exhibits a higher transepithelial resistance than other segments of the renal tubule exhibit. However, the functional relevance of this strong collecting duct epithelial barrier is unresolved. Here, we report that collecting duct-specific deletion of an epithelial transcription factor, grainyhead-like 2 (GRHL2), in mice led to reduced expression of tight junction-associated barrier components, reduced collecting duct transepithelial resistance, and defective renal medullary accumulation of sodium and other osmolytes. In vitro, Grhl2-deficient collecting duct cells displayed increased paracellular flux of sodium, chloride, and urea. Consistent with these effects, Grhl2-deficient mice had diabetes insipidus, produced dilute urine, and failed to adequately concentrate their urine after water restriction, resulting in susceptibility to prerenal azotemia. These data indicate a direct functional link between collecting duct epithelial barrier characteristics, which appear to prevent leakage of interstitial osmolytes into urine, and body water homeostasis.