The first cells evolved in a watery environment so all the chemistry of life is based on it. H2O is also a somewhat odd molecule. Very polar (+ and – charged parts), neutral and capable of interacting with acidic and alkaline molecules and very stable. The polarity means that in the liquid state it forms clusters of molecules so the boiling point is much higher than you would expect from the periodic table – compare to H2S, NH3, HF, all gasses at room temperature.
Life needs a solvent, something nutrients, wastes, and gasses can be dissolved in within the range of pressures and conditions favorable to life. Water is an excellent polar solvent, it’s the first solvent most of us are familiar with, but critically water doesn’t dissolve fats. So water can carry oxygen, CO2, carbonate, electrolytes, all sorts of wastes, and so on… AND it won’t dissolve our cell membranes as well.
It’s surprisingly difficult to find a fluid with all of those properties!
Water is actually a really good solvent for many substances, and it exists in large quantities. It enables chemical reactions to occur easier than they would on a dry surface, because all the molecules happily float there and are free to bump into eachother. That’s why cells are filled with water. It makes our life chemistry work.
But water doesn’t like to dissolve long carbon chains, like oils… or those our cell walls are made of. So they can form little isolated bubbles. Cells if you like.
Water is also nice for any aquatic life in colder regions. Water being less dense as a solid isn’t too common, so if it was a different liquid, it would freeze, then sink to the bottom, forcing everything up as it keeps freezing, eventually freezing solid. When Water freezes, it insulates the liquid before