From Creatures Wikia
Water is a chemical found in the first three games of the Creatures series. There are many bodies of water in Albia, although in C1, it was purely for aesthetic purposes - lapping gently at the submarine cave and so on. In C2, it became an actual chemical with properties (like making your norns drown...). In Creatures 3, the Marine Terrarium is made up almost entirely of water (salt), and there are fresh water ponds in the Norn Terrarium and Jungle Terrarium.
Most of the bodies of water in the Creatures games are inhabited by water-specific animal life ranging from fish to the elusive Borland. Creatures whose genetics aren't adapted to breathe underwater will drown in this element.
In C3/DS it is used in the respiratory process, and also reacts with hotness and fever toxin to reduce fevers. Occasionally, fever toxin and some antigen infections can cause the creature to dehydrate so much that the creature suffocates.