Why do low carb diets act as a diuretic?

Ketones: The diet is low in carbohydrates leading to the body using fat rather than sugar as fuel. The breakdown of fat leads to the production of ketones. The higher ketone level is removed through an osmotic diuresis via the urine. The higher urine production is die to the ketosis produced by the diet.

You are making water: When you go on a low carb diet you mobilize the carbohydrates stored in your body (primarily in the liver), breaking these long chain carbohydrates down into usable glucose molecules releases water. Thiis is part of the reason for the quick weight loss (that is not fat) in the early part of a diet.