Amorphous solid dispersions (ASDs) are commonly used in the pharmaceutical industry to improve the dissolution and bioavailability of poorly water-soluble drugs. Hot melt extrusion (HME) has been employed to prepare ASD based products. However, due to the narrow processing window of HME, ASDs are normally obtained with high processing temperatures and mechanical stress. Interestingly, one-third of pharmaceutical compounds reportedly exist in hydrate forms. In this study, we selected carbamazepine (CBZ) dihydrate to investigate its solid-state changes during the dehydration process and the impact of the dehydration on the preparation of CBZ ASDs using a Leistritz micro-18 extruder. Various characterization techniques were used to study the dehydration kinetics of CBZ dihydrate under different conditions. We designed the extrusion runs and demonstrated that: 1) the dehydration of CBZ dihydrate resulted in a disordered state of the drug molecule; 2) the resulted higher energy state CBZ facilitated the drug solubilization and mixing with the polymer matrix during the HME process, which significantly decreased the required extrusion temperature from 140 to 60 °C for CBZ ASDs manufacturing compared to directly processing anhydrous crystalline CBZ. This work illustrated that the proper utilization of drug hydrates can significantly improve the processability of HME for preparing ASDs.