The abundance of integral membrane proteins in the plasma membrane is determined by a dynamic balance between exocytosis and endocytosis, which can often be regulated by physiological stimuli. Here, we describe a mechanism that accounts for the ability of the peptide hormone vasopressin to regulate water excretion via a phosphorylation-dependent modulation of the PDZ domain-ligand interaction involving the water channel protein aquaporin-2. We discovered that the PDZ domain-containing protein Sipa1l1 (signal-induced proliferation-associated 1 like 1) binds to the cytoplasmic PDZ-ligand motif of aquaporin-2 and accelerates its endocytosis in the absence of vasopressin. Vasopressin-induced aquaporin-2 phosphorylation within the type I PDZ-ligand motif disrupted the interaction, in association with reduced aquaporin-2 endocytosis and prolonged plasma membrane aquaporin-2 retention. This phosphorylation-dependent alteration in the PDZ domain-ligand interaction was explained by 3D structural models, which showed a hormone-regulated mechanism that controls osmotic water transport and systemic water balance in mammals.