The use of polar hydrotropes in extractive and in liquid‐liquid extraction has been extensively reported in the literature. In this article, the effect of hydrotropes on increasing the effectiveness of separation is explained in terms of the effect of the dipole‐induced dipole and the ion‐induced dipole interactions on the activity coefficients of the neutral solutes in the aqueous phase. The self‐consistent local composition theory is used to correlate quantitatively the observed behavior in systems involving liquid‐liquid equilibria. The theory yields composition‐dependent expressions for the effect of each independent pair interaction on the activity coefficient of a neutral solute in the aqueous phase. The ratio of the activity coefficients of the two solutes is of interest in this context. The resulting expression for the separation factor is elegant and admits simple physical interpretation. The essential features of hydrotrope‐assisted extraction are correctly described by the theory. The ability of the theory to correlate data is demonstrated for two systems. Copyright © 1994 American Institute of Chemical Engineers