Distilled water could be used to dilute DMSO. But I don’t know in what context are you asking this question?
Nevertheless, for cell based assay, when DMSO is used to prepare the stock solution, the stock solution is diluted in the culture medium to prepare a working solution. Make sure the final concentration of DMSO in culture is less than 0.1% to avoid toxicity to the cells. A negative control in the experiment is usually the culture medium with DMSO at the same concentration. It is recommended that the process of dilution be performed in a stepwise manner to avoid compound precipitating caused by fast change of concentration.
For animal experiment, stock solution using DMSO as a solvent can also be diluted with PBS or 0.9% NaCl to prepare the working solution. In order to reduce its toxicity to animals, the final concentration of DMSO in working solution should preferably be 2% or lower. When precipitate forms during the dilution process due to their low water solubility, you can also use a co-solvent to help dissolve the compound. Common co-solvents contain glycerol, Tween 80, sodium carboxymethylcellulose (CMC-Na), cyclodextrin, PEG400, etc.