Use polymeric filtering for small amounts of water in your system.
Attach polymeric filters to your hydraulic system and allow the oil to flow through them.
Once the filters are swollen with water, remove them. Polymeric filters allow oil to flow through, but they trap water. This will allow you to remove small amounts of water.
Use vacuum distillation for when there is more water than the polymer filters can handle.
Pressurize your hydraulic fluid to 25 inches of mercury. 25 inches of mercury means that it is the same amount of pressure exerted by a 25-inch column of mercury -- or 12 pounds per square inch. You can do this by pumping the pipes, which will remove air from them and increase the pressure.
Heat the fluid to 135 degrees Fahrenheit. This is water's boiling point at 25 mercury inches -- substantially less than its standard boiling point.
Allow the now-distilled water to escape. The reason you pressurize it before doing so is because water's standard boiling point (212 degrees Fahrenheit) will damage the oil.