The water sensor is on the bottom of the fuel filter (behind o/s/r wheel). Unplug the electrical multiplug, unscrew the little black plastic bit and - with a container underneath to catch the water/fuel mix - let the water run out, until you get neat diesel. Screw the black bit back on, plug in the multiplug and job done.
Some of the earlier water sensors go duff and light the light even when there's no water in the fuel, you'll need a new sensor if draining the filter doesn't work - the light doesn't need any diag/test kit to turn it off.