A novel localization method based on multiple signal classification (MUSIC) algorithm is proposed for positioning an electric dipole source in a confined underwater environment by using electric dipole-receiving antenna array. In this method, the boundary element method (BEM) is introduced to analyze the boundary of the confined region by use of a matrix equation. The voltage of each dipole pair is used as spatial-temporal localization data, and it does not need to obtain the field component in each direction compared with the conventional fields based localization method, which can be easily implemented in practical engineering applications. Then, a global-multiple region-conjugate gradient (CG) hybrid search method is used to reduce the computation burden and to improve the operation speed. Two localization simulation models and a physical experiment are conducted. Both the simulation results and physical experiment result provide accurate positioning performance, with the help to verify the effectiveness of the proposed localization method in underwater environments.