In various mammalian species, including humans, water restriction leads to an acute increase in urinary sodium excretion. This process, known as dehydration natriuresis, helps prevent further accentuation of hypernatremia and the accompanying rise in extracellular tonicity. Serum- and glucocorticoid-inducible kinase (Sgk1), which is expressed in the renal medulla, is regulated by extracellular tonicity. However, the mechanism of its regulation and the physiological role of hypertonicity-induced SGK1 gene expression remain unclear. Here, we identified a tonicity-responsive enhancer (TonE) upstream of the rat Sgk1 transcriptional start site. The transcription factor NFAT5 associated with TonE in a tonicity-dependent fashion in cultured rat renal medullary cells, and selective blockade of NFAT5 activity resulted in suppression of the osmotic induction of the Sgk1 promoter. In vivo, water restriction of rats or mice led to increased urine osmolality, increased Sgk1 expression, increased expression of the type A natriuretic peptide receptor (NPR-A), and dehydration natriuresis. In cultured rat renal medullary cells, siRNA-mediated Sgk1 knockdown blocked the osmotic induction of natriuretic peptide receptor 1 (Npr1) gene expression. Furthermore, Npr1–/– mice were resistant to dehydration natriuresis, which suggests that Sgk1-dependent activation of the NPR-A pathway may contribute to this response. Collectively, these findings define a specific mechanistic pathway for the osmotic regulation of Sgk1 gene expression and suggest that Sgk1 may play an important role in promoting the physiological response of the kidney to elevations in extracellular tonicity.