Water rockets are like their model rocket cousins, except that these are powered by a combination of water and air pressure instead of a chemical propellant.
The pressure vessel, the engine of the rocket, is usually a used plastic soft drink bottle.
The bottle is partially filled with water (typically a third full), and then inverted so the nozzle points towards the ground.
The bottle is then pressurized with air and then released.
Water and air are used in combination, with the air providing a means to store potential energy, as it is easily compressed, and the water providing momentum when ejected from the rocket's nozzle.