We analyze the microscopic dynamics and transport properties of a gas of thin hard rods. Based on the collision rules for hard needles we derive a hydrodynamic equation that determines the coupled translational and rotational dynamics of a tagged thin rod in an ensemble of identical rods. Specifically, based on a pseudo-Liouville operator for binary collisions between rods, the Mori-Zwanzig projection formalism is used to derive a continued fraction representation for the correlation function of the tagged particle’s density, specifying its position and orientation. Truncation of the continued fraction gives rise to a generalized Enskog equation, which can be compared to the phenomenological Perrin equation for anisotropic diffusion. Only for sufficiently large density do we observe anisotropic diffusion, as indicated by an anisotropic mean-square displacement, growing linearly with time. For lower densities, the Perrin equation is shown to be an insufficient hydrodynamic description for hard needles interacting via binary collisions. We compare our results to simulations and find excellent quantitative agreement for low densities and qualtitative agreement for higher densities.