MX-80 bentonite used in engineered barrier systems would be subjected to wetting and drying cycles. To assess the response of the material under such circumstances, a comprehensive experimental characterisation of the water retention behaviour of compacted MX-80 granular bentonite was performed in this paper. A new methodology is proposed to investigate this behaviour under constant volume conditions for specimens prepared at different dry densities. The material was subjected to different hydraulic paths, including cyclic variations of the water content. As a result, an irreversible modification of the retention behaviour was observed when the material approached a fully saturated state during the first main wetting, and a new hydraulic domain was consequently created. The water retention capacity of the material increased as a result of such modification. Microstructural observations were performed at different stages of the hydraulic paths to relate the permanent change in the retention behaviour to the evolution of the fabric during the wetting and drying cycles. A clear transition from a double-structured to a single-structured fabric, followed by a permanent change of the microfabric, was found following the first wetting. Available data on the hydration of smectite particles were used to relate the microstructural evolution to the change in the water retention properties. This correlation shows the evolution of the active porosity at the particle level within the microstructure, which consequently affects the macroscopic response of the bentonite in terms of its water retention behaviour.