Discharges in liquids have been the subject of intensive investigations for a broad range of applications and involve highly coupled and complex phenomena with timescales ranging from picoseconds to seconds and length scales from micrometers to centimeters. This review focuses on some of the challenges in optical diagnostics of discharges in and in contact with liquids; this includes the interpretation of optical emission spectra, the inherently stochastic nature of many discharge phenomena including the initial stages of plasma ignition, and the large gradients in species and plasma properties interfacing with a dynamic liquid interface. We report recent notable advances, controversies in interpretations of diagnostics, and remaining opportunities.