The antidiuretic hormone vasopressin (AVP) regulates renal salt and water reabsorption along the distal nephron and collecting duct system. These effects are mediated by V2 receptors (V2R) and release of intracellular Gs-mediated cAMP to activate epithelial transport proteins. Inactivating mutations in the V2R gene lead to the X-linked form of nephrogenic diabetes insipidus (NDI) which has chiefly been related with impaired aquaporin 2-mediated water reabsorption in the collecting ducts. Previous work also suggested the AVP-V2R-mediated activation of Na+-K+-2Cl--cotransporters (NKCC2) along the thick ascending limb (TAL) in the context of urine concentration, but its individual contribution to NDI or, more generally, to overall renal function was unclear. We hypothesized that V2R-mediated effects in TAL essentially determine its reabsorptive function. To test this, we reevaluated V2R expression. Basolateral membranes of medullary and cortical TAL were clearly stained, whereas cells of the macula densa cells were unreactive. A dominant-negative, NDI-causing truncated V2R mutant (Ni3-Glu242 stop) was then introduced into the rat genome under control of the Tamm-Horsfall protein promoter to cause a tissue-specific AVP-signalling defect exclusively in TAL. Resulting Ni3-V2R transgenic rats revealed decreased basolateral but increased intracellular V2R signal in TAL epithelia, suggesting impaired trafficking of the receptor. Rats displayed significant baseline polyuria, failure to concentrate the urine in response to water deprivation, and hypercalciuria. NKCC2 abundance, phosphorylation, and surface expression were markedly decreased. In summary, these data indicate that suppression of AVP-V2R signaling in TAL causes major impairment in renal fluid and electrolyte handling. Our results may have clinical implications.