Self-localization has become one of the major areas of research in drifted underwater acoustic networks (DUANs) since many applications are based on the knowledge of nodes’ positions. However, self-localization for DUANs faces two main challenges: the insufficient anchors and the varying network topology. Both affect the localization performance seriously. In this paper, we focus on these two challenges and propose a dynamic reference selection-based self-localization algorithm for DUANs (DRSL) to improve the localization performance. First, an optimal reference selection scheme is presented to solve the insufficient anchors’ problem. The selected optimal reference node can not only assist the insufficient anchors in accomplishing the localization procedure, but also obviously increase the localization accuracy. Based on the proposed optimal reference selection scheme, a dynamic reference selection-based self-localization algorithm is proposed to solve the topology changing problem. The proposed algorithm can improve the localization performance for DUANs significantly by selecting the reference node dynamically according to the predicted network topology, which is more suitable for DUANs with mobile sensor nodes. Simulation results show that the proposed DRSL algorithm can increase the localization accuracy greatly with insufficient anchor nodes and varying network topology. In addition, DRSL algorithm also has a lower communication cost than other anchor-free approaches, which distinctly demonstrates the advantages of the proposed DRSL algorithm.