The question below highlights recent studies that conclude coffee does not necessarily dehydrate.
Why has it always been assumed otherwise? Perhaps the evidence was based on tests of pure caffeine?
Why it has been long assumed that caffeine or coffee is dehydrating?
Because caffeine is a mild diuretic - it stimulates water excretion through the kidneys. But the amount of water you consume with caffeinated drinks is usually greater than the amount of water you lose in urine due to caffeine diuretic effect, so there is no net water loss and hence no dehydration.
Also, regular (daily) coffee drinkers will usually quickly (within few days) develop tolerance to caffeine effects including the diuretic effect.
Source 1 (PubMed, 2003):
Caffeine and related methylxanthine compounds are recognized as having a diuretic action...
The available literature suggests that acute ingestion of caffeine in large doses (at least 250-300 mg, equivalent to the amount found in 2-3 cups of coffee or 5-8 cups of tea) results in a short-term stimulation of urine output in individuals who have been deprived of caffeine for a period of days or weeks. A profound tolerance to the diuretic and other effects of caffeine develops, however, and the actions are much diminished in individuals who regularly consume tea or coffee. Doses of caffeine equivalent to the amount normally found in standard servings of tea, coffee and carbonated soft drinks appear to have no diuretic action.
Source 2 (PubMed, 2014):
It is often suggested that coffee causes dehydration and its consumption should be avoided or significantly reduced to maintain fluid balance...Our data show that there were no significant differences across a wide range of haematological and urinary markers of hydration status between trials. These data suggest that coffee, when consumed in moderation by caffeine habituated males provides similar hydrating qualities to water.
In conclusion, the old suggestion that caffeine is dehydrating was due to misinterpretation that increased diuresis automatically results in dehydration. They also overestimated the actual diuretic effect of caffeine.