Because of the negative environmental impact of volatile hydrocarbon-based blowing agents used in expandable polymers, water has been considered a suitable candidate. Water expandable polystyrene is a polystyrene containing water cells, which may be used as blowing agent. Because of different physical properties of water and volatile hydrocarbons, production conditions and physical properties of expandable polystyrene and water expandable polystyrene are completely different. In this work, water expandable polystyrene was prepared via suspension polymerization of the styrene/polystyrene mixture that contained water droplets as blowing agent. An inverse emulsion system was used to incorporate water into the organic phase. An experimental design was created to investigate the effects of variation of pre-polymerization time, surfactant concentration, suspension stabilizer/suspending agent ratio, suspension stabilizer addition time, and the amount of initial emulsified water on the particle size, distribution of water droplets, and the water content of the final beads. The relationships between the synthesis parameters and the properties of water expandable polystyrene were also studied. Regarding to the expansion behavior of water expandable polystyrene beads, the effect of water content and bead size on the expandability and the foam density were investigated.