Swelling-associated changes in extracellular matrix (ECM) occur in many pathological conditions involving inflammation or oedema. Here we show that alterations in the proportion of loosely bound water in ECM correlate with changes in ECM elasticity and stress relaxation, owing to the strength of water binding to ECM being primarily governed by osmolality and the electrostatic properties of proteoglycans. By using mechanical testing and small-angle X-ray scattering, as well as magnetic resonance imaging (MRI) to detect changes in loosely bound water, we observed that enhanced water binding manifests as greater resistance to compression (mechanical or osmotic), resulting from increased electrostatic repulsion between negatively charged proteoglycans rather than axial contraction in collagen fibrils. This indicates that electrostatic contributions of proteoglycans regulate elasticity and stress relaxation independently of hydration. Our ex vivo experiments in osmotically modulated tendon elucidate physical causes of MRI signal alterations, in agreement with pilot in vivo MRI of inflammatory Achilles tendinopathy. We suggest that the strength of water binding to ECM regulates cellular niches and can be exploited to enhance MRI-informed diagnostics of swelling-associated tissue pathology.