Hot melt extrusion is important for the development of advanced pharmaceutical dosage forms. In this study, the dehydration of nitrofurantoin monohydrate during melt extrusion below the expected dehydration temperature has been investigated. The influence of process time, temperature, and drug/polymer ratio on the solid form of the drug compound was studied using drug/polymer physical mixtures with thermogravimetric analysis (TGA), differential scanning calorimetry (DSC), X-ray powder diffraction, rheometry, and hot-stage microscopy and compared with data generated from the extruded products. Extensive dehydration of nitrofurantoin monohydrate was surprisingly observed at extrusion temperatures as low as 70 °C in contrast with TGA and DSC analysis of the pure drug indicating dehydration onset at around 90 °C. This was related to shear induced solution-mediated transformation, where nitrofurantoin dissolved into the molten polymer and rapidly recrystallized as nitrofurantoin anhydrate, as well as simultaneous solid–solid transformation. In conclusion, these types of complex interactions may cause unexpected solid form transformations of the drug in a melt-based drug product and therefore need to be considered during the drug development process.