Water is essential for life because it has a specific combination of properties that all cells need. One of these properties is a high specific heat. This means that water, even in relatively small volumes, can absorb and hold a fair amount of heat energy without undergoing a large change in temperature. In cells, this is a valuable property, because the internal temperature of a cell has to remain within a narrow window so that enzymes and other proteins, which are temperature sensitive, can function correctly.
Another property of water that is important to cells is its polarity. Water molecules are polar, which means that the two ends of the molecule have different charges, due to the distribution of electrons. This means that water is a good solvent, and the water within and around cells usually has various ions including calcium, potassium, and sodium dissolved in it. These allow electrical charges to be created and transmitted, and also help keep the cell in osmotic balance. The ability of water to dissolve other substances also allows cells to use and move substances such as glucose, oxygen, and carbon dioxide.
Water molecules, being small, are able to pass across the cell membrane easily and at no cost to the cell. This is important because a high percentage of cytoplasm is composed of water. If a cell had to utilize energy to move water, there would be little energy available for it to do anything else.