While lithium remains the most efficacious treatment for bipolar disorder, it can cause significant nephrotoxicity. The molecular mechanisms behind both this process and the development of nephrogenic diabetes insipidus still remain to be fully elucidated but appear to involve alterations in glycogen synthase kinase 3 signalling, G2 cell cycle progression arrest, alterations in inositol and prostaglandin signalling pathways, and dysregulated trafficking and transcription of aquaporin 2 water channels. The end result of this is a tubulointerstitial nephropathy with microcyst formation and relative glomerular sparing, both visible on pathology specimens and increasingly noted on non-invasive imaging. This paper will elucidate on the current evidence pertaining to the pathophysiology of lithium induced nephrotoxicity.