The Water Elemental was the last of four Elementals summoned by the evil wizard Ad Avis to attack the city of Shapeir in Quest for Glory II: Trial by Fire. When it appeared the Elemental took over the magical fountain at the center of the city. As this was Shapeir's only source of water, it would prove especially deadly in the desert environment.
To defeat the Water Elemental, the Hero placed a filled waterskin on the ground in the Fountain Plaza. He then used the Bellows which contained the Air Elemental he had previously captured to blow the Water Elemental out of the fountain. With no other source of water nearby, the Elemental jumped into the waterskin where it was captured.
After defeating Ad Avis and freeing the city of Raseir from his oppressive rule the Hero released the captured Water Elemental into the fountain at the center of that city, which had dried up. The magic of the Elemental restored that of the fountain, and also began to restore the cracked and ruined plaza itself.
The essence of Water is attraction. The Elemental can draw all water into itself. It can draw water from the very body of a human that approaches it. A Water Elemental looks for the largest source of water in an area, especially those that are magical and endless. It then draws upon the boundless magical stream. People begin to dye of thirst as it grows in power enough to engulf its surroundings in a flood. As long as the Water Elemental has a steady source of water, the Elemental cannot be harmed or contained. It is only vulnerable to Air. Once away from a major water source, it will be drawn to the nearest source of water, at which point one can attempt to contain it.
Behind the scenes
If the Hero doesn't capture the Elemental, it will destroy Shapeir on Day 16.
Strangely, if the Wizard casts Detect near the elemental, the narration will mention that there is no magic nearby.