This is a summary/extract from The Ketogenic Diet by Lyle McDonald.
A well established fact is that low-carbohydrate diets tend to cause a rapid loss of water in the first few days. This occurs [because] glycogen is stored along with water in a ratio of three grams of water for every gram of stored carbohydrate. As glycogen is depleted, water is lost. For large individuals, this can represent a lot of weight. Additionally, ketones appear to have a diuretic effect themselves causing the excretion of water and electrolytes.
The fact that the initial weight loss on a ketogenic diet is from a loss of water weight has led to a popular belief that the only weight lost on a ketogenic diet is from water, an attitude that makes little sense. The question then is whether more or less true weight is lost on a ketogenic diet versus a non-ketogenic diet.
In most studies, a low-carbohydrate diet will show a greater total weight loss than a high carbohydrate, but this is not always the case. Once water loss has been taken into account, the rate of weight loss seen, as well as the total weight loss is generally the same for ketogenic versus non-ketogenic diets. That is, if individuals are put on a 1200 calorie per day diet, they will lose roughly the same amount of ‘true’ weight (not including water) regardless of the composition of the diet.