The effect of sodium-glucose cotransporter-2 (SGLT2) inhibitor ertugliflozin on fluid volume and kidney function was assessed in patients with type 2 diabetes and heart failure. Thirty-four participants were randomized in this double-blind, placebo-controlled, parallel-group, multicenter study. Physiologic measurements were obtained under clamped euglycemia at baseline, 1 week, and 12 weeks of treatment. The primary outcome was the proximal tubular natriuretic effect of ertugliflozin versus placebo, measured by fractional excretion of lithium (FELi). Ertugliflozin did not increase FELi or total FENa at 1 week or 12 weeks. Ertugliflozin increased both mean 24-h urinary sodium excretion (47.5 ± 22.1 mmol/day vs. placebo, p = 0.032) and urinary volume (p = 0.009) at 1 week, which was attenuated at Week 12. Reductions in extracellular fluid (-1.9 ± 0.8 L, p = 0.01), estimated plasma volume (-11.9 ± 13.9%, p = 0.02), and supine mean arterial pressure (-6.6 ± 2.7 mmHg, p = 0.02) were significant at Week 12. Compared to placebo, ertugliflozin acutely increased circulating angiotensinogen and angiotensin-converting enzyme (ACE) levels, as well as urine adenosine and ACE2 activity (p < 0.05). Changes in other neurohormones, sympathetic activity, kidney, and systemic hemodynamics did not differ compared to placebo. Our findings suggest that SGLT2 inhibition shifts systemic volume toward a state of euvolemia, potentially lowering the risk of worsening heart failure.