Don't do it.
This writeup was originally written in response to a writeup containing an extract from the book "How to hold a crocodile", which has since been deleted. The basic idea of the extract, that one can induce an axolotl to morph into a salamander by lowering the water level in their aquarium slowly, I've heard repeated a couple of times by people, and it can either be viewed as an urban legend surrounding these odd little creatures or as a quite cruel way to kill your axolotl.
The axolotl proper, Ambystoma mexicanum, is the charming but not-quite-right cousin within the salamander family. While very closely related to its kin, who decided that after going through a larval stage it was only proper to use their legs and walk about on land for at least some of the time, the axolotl remains — maybe due to harsh terrestrial conditions while they were evolving, maybe due to a lack of iodine in their diet leaving them unable to produce thyroxin — in a neotenous state very similar to the larval stages of salamanders. They develop lungs, with which they occasionally take the sly puff of contraband air, and become sexually mature in this state, but they retain larval traits like a tailfin and frilly gill-stalks. Sadly, some confusion occurs in the (older) literature about the difference between axolotls and salamander larvae, with "axolotl" being overloaded to apply to both.
Some axolotls can, depending upon their lineage, successfully metamorphose if their aquatic xanadu becomes inhospitable or if they're injected with hormones. Some spontaneous metamorphoses have been observed, and the rate of occurrence has been linked to diet. However, shrinking gills and other signs of transformation usually mean that there's something amiss with their habitat, such as low oxygen levels, too much ammonia, or indeed some prat reducing the water level in their aquarium. Most axolotls aren't particularly happy with this, and die during the process (if the process starts at all).
Even if you successfully turn your axolotl into a faux-salamander, these individuals seem a little out-of-sorts with their new environment due to a few million years of evolutionary wandering since they gave up growing up. They tend to be sickly and disease-prone with a severely reduced life span. Even more worryingly, they often forget to go back to the water, and so dry out and become unable to move.
Perhaps "how to turn your axolotl into a stressed, diseased, crispy not quite ex-salamander if you're really lucky" would be a better title. Don't do it, kids.
More information on terrestrial axolotls can be found at the Indiana University Axolotl Colony's website: http://www.indiana.edu/~axolotl/axolotls/shortguide/terrestrial.html