The kidneys play a critical role in the maintenance of water homeostasis. This is achieved by the inherent architecture of the nephron along with the expression of various membrane transporters and channels that are responsible for the vectorial transport of salt and water. The collecting duct has become a focus of attention by virtue of its ability to transport water independent of solutes (free-water transport), and its apparent involvement in various water balance disorders. It was originally believed that the water transport capability of the collecting duct was solely under the influence of the circulating hormone, arginine vasopressin (AVP). However, during the past decade, locally produced autocrine and/or paracrine factors have emerged as potent modulators of transport of water by the collecting duct. Recently, much attention has been focused on the purinergic regulation of renal water transport. This review focuses on the role of the P2Y 2 receptor, the predominant purinergic receptor expressed in the collecting duct, in the modulation of water transport in physiological and pathophysiological conditions, and its therapeutic potential as a drug target to treat water balance disorders in the clinic. Studies carried out by us and other investigators are unravelling potent interactions among AVP, prostanoid and purinergic systems in the medullary collecting duct, and the perturbations of these interactions in water balance disorders such as acquired nephrogenic diabetes insipidus. Future studies should address the potential therapeutic benefits of modulators of P2Y 2 receptor signalling in water balance disorders, which are extremely prevalent in hospitalised patients irrespective of the underlying pathology.