Actually, Keto diets (done correctly) make you hold LESS water. A great deal of the quick weight loss that many people see after first going into ketosis is due to loss of water weight.
Keto diets are great and have their place, but be careful.
Their advantage is that for a slight caloric deficit (eating below maintenance) Keto diets spare LESS lean mass than a regaulr diet.
However they will cause some lowering of lean mass, just LESS than you would otherwise get from a more balanced diet.
The best option for using ketosis as a dieting tool is to do a cyclic ketogenic diet (CKD) as Duchaine wrote about in his Bodyopus book. Actually, the book by Lyle MacDonald is better, and more up-to-date.
Going for a straight Keto diet is rough, and its hard to get enrgy for workouts that way. You can do a Targeted Keto diet (TKD) where you eat Carbs FOR the workout just before the workout, and deplete all of those carbs during that workout .... but thats kinda rough becuase you must go through the "getting into Ketosis" phase, which is the part I hate.
Being in ketosis is fine, but GETTING there I do NOT like (my body screams for fuel - I want to kick ssomeones as for just like an apple or orange - LOL).
Anyway - MacDonalds book on this stuff is awesome - possibly THE best dieting reference there is, for Keto, CKG, TKD and other diets as well.