Kefir is a low-alcohol, carbonated, and slightly sour fermented beverage offering health benefits such as intestinal microbiota regulation, antioxidation, and hypolipidemic effects. Kefir is produced using kefir grains, a fermentation starter, and is classified as either water kefir or milk kefir according to the fermentation substrate. Water kefir is produced with the help of water kefir grains by using a sugar-containing aqueous solution or fruit and vegetable juice as the substrate, whereas milk kefir is mainly made from cow milk, goat milk, or camel milk fermented by milk kefir grains. Compared with milk kefir, water kefir has a relatively recent consumption history. Yet, because it can be produced from many different fermentation substrates and offers more health benefits, water kefir has also received widespread attention from lactose-intolerant individuals and vegetarians. However, research on water kefir is scarce, which impedes the improvement of the associated production and processing technology. This review begins by highlighting the differences between milk kefir and water kefir, and then introduces the microbial diversity, functional properties, and applications of water kefir in detail. The ultimate aim is to provide a theoretical basis for further research and development of water kefir.