In chapter XXII of Beowulf, Grendel's mother's lair is described (as Beowulf descends into the cave to destroy her). (On a side note, many epic heroes were required to make a journey into the underworld (or Hell) in order to complete an epic battle with a foe of equal or greater power than the hero himself.) Therefore, Grendel's mother's lair is meant to symbolize Hell itself.
Parts of the cavern were flooded with water. It is only when Beowulf comes to the actual place where Grendel's mother lives that the water monsters who previously tried to kill him vanish.
It seems that the lair is very large, given the description:
He soon noticed that he was now in some strange cavern where no water could harm him and the fangs of the depths could never reach him through the roof. He saw firelight flung in beams from a bright blaze.
At the opening of chapter XXIII, the narrative states that Grendel's mother has a hoard of ancient weapons stored in her lair.
The battle gear there he saw a blade triumphant—an old sword of the giants, an heirloom of warriors, a peerless weapon.
Given the evil which inhabited the cave, once the monster was disposed of the light of heaven filed the lair.
Then light shone forth; it was bright in there, as when heaven's candle shines in a sky without clouds.
Essentially, the lair was dark, dangerous, and foreboding given it belonged to a monster of evil.