Water Bugs is a game in the vein of JezzBall, in that the player must divide the playfield into sections in order to clear it of enemies. As the player divides the playfield, the smaller section will be blanked out killing any enemies trapped within and walking along the border. When the playfield is reduced to 15% of its original size, the level is cleared and the player can move on to the next.

There are two different kinds of enemies: ones walking around the border of the playfield and ones swimming around inside the playfield. The enemies display different movements. While most walk in their own random patterns, some will actually follow the player's launcher. Some border walking enemies will even attack the player's dividing lines in order to stop the division from happening. There are 9 stages which are essentially just backgrounds, with 599 playable levels in total.