The cellulose industry depends heavily on water owing to the hydrophilic nature of cellulose fibrils and its potential for sustainable and innovative production methods. The emergence of nanocellulose, with its excellent properties, and the incorporation of nanomaterials have garnered significant attention. At the nanoscale level, nanocellulose offers a higher exposure of hydroxyl groups, making it more intimate with water than micro-and macroscale cellulose fibers. Gaining a deeper understanding of the interaction between nanocellulose and water holds the potential to reduce production costs and provide valuable insights into designing functional nanocellulosebased materials. In this review, water molecules interacting with nanocellulose are classified into free water (FW) and bound water (BW), based on their interaction forces with surface hydroxyls and their mobility in different states. In addition, the waterholding capacity of cellulosic materials and various water detection methods are also discussed. The review also examines water-utilization and water-removal methods in the fabrication, dispersion, and transport of nanocellulose, aiming to elucidate the challenges and tradeoffs in these processes while minimizing energy and time costs. Furthermore, the influence of water on nanocellulose properties, including mechanical properties, ion conductivity, and biodegradability, are discussed. Finally, we provide our perspective on the challenges and opportunities in developing nanocellulose and its interplay with water.