Water can be auto-generated in the same manner as forests and buildings if lake generation feature is ticked when creating a new prison. Since The Rock version, water can be accessed from Materials menu and be build by players to create moats, lakes, rivers and islands.
Water blocks the movement of all the entities (prisoners, staff, visitors) which means they can't swim in it, cross over it and tunnel under. This however is changed when Island Bound DLC is installed.
With Island Bound DLC installed, prisoners are given swim stamina that allows them to swim in the water. Prisoners will do so to escape from the prison and drown if the distance they have to swim is too big. Prisoners who drown are automatically removed from the map and there's no need for recovering their bodies.
Water is also used by boats to deliver various supplies and people.
See the DLC page for full list.
Shallow water is a new type of water, exclusive to Island Bound DLC that can be walked on with reduced speed. It has a little bit brighter color and can be used to make better looking shorelines, moats and rivers.
- Since version The Rock, it is possible to build utilities under the water and place several objects (exclusive to IB DLC) on it, such as: