In order to search for evidence of hydration on M-type asteroid (16) Psyche, we observed this object in the 3 μm spectral region using the long-wavelength cross-dispersed (LXD: 1.9-4.2 μm) mode of the SpeX spectrograph/imager at the NASA Infrared Telescope Facility. Our observations show that Psyche exhibits a 3 μm absorption feature, attributed to water or hydroxyl. The 3 μm absorption feature is consistent with the hydration features found on the surfaces of water-rich asteroids, attributed to OH- and/or H2O-bearing phases (phyllosilicates). The detection of a 3 μm hydration absorption band on Psyche suggests that this asteroid may not be a metallic core, or it could be a metallic core that has been impacted by carbonaceous material over the past 4.5 Gyr. Our results also indicate rotational spectral variations, which we suggest reflect heterogeneity in the metal/silicate ratio on the surface of Psyche.