**Core Concept**
Lithium-induced diabetes insipidus is a condition where lithium therapy leads to nephrogenic diabetes insipidus, characterized by the kidneys' decreased ability to concentrate urine in response to antidiuretic hormone (ADH). This occurs due to lithium's toxic effect on the renal tubular cells, specifically the collecting ducts, which are responsible for water reabsorption.

**Why the Correct Answer is Right**
The drug of choice in lithium-induced diabetes insipidus is desmopressin, a synthetic analogue of vasopressin (ADH). Desmopressin works by mimicking the action of ADH on the collecting ducts, thereby increasing water reabsorption and reducing urine output. This results in a decrease in urine production and an improvement in symptoms. Desmopressin is effective because it has a longer duration of action and is more potent than natural ADH.

**Why Each Wrong Option is Incorrect**
* **Option A:** Hydrochlorothiazide is a diuretic that would exacerbate lithium-induced diabetes insipidus by increasing urine production. It is not a suitable treatment for this condition.
* **Option B:** Furosemide is another diuretic that would worsen lithium-induced diabetes insipidus by increasing urine output and reducing the kidneys' ability to concentrate urine.
* **Option D:** Amiloride is a potassium-sparing diuretic that may actually worsen lithium-induced diabetes insipidus by further impairing the kidneys' ability to concentrate urine.

**Clinical Pearl / High-Yield Fact**
It is essential to note that desmopressin may have a rebound effect if used long-term, leading to a paradoxical increase in urine production. This highlights the importance of carefully monitoring patients on desmopressin therapy and adjusting the dose as needed.

**Correct Answer:** C. Desmopressin.