This artificial lake provided most of the drinking water for Red Dwarf.
The Cat once hid a baby Despair Squid here so that he could eat it later, unknown to the others, and forgot about it. Many years later, the grown Despair Squid emerged to damage the Water Tank, and cause the gang more problems much like an earlier one of it's kind had on an ocean moon. (Back to Earth - Series IX)
When the gang noticed that there was only a drip coming out of the taps, the Cat went up to the Water Tank to investigate. Cat came back noticeably disheveled and soaking wet, having been attacked by purple, slimy tentacles (or as Cat says, "testicles") and was pulled in. Evidently, some sort of "sea monster" was the cause of their problems, and not actually a lack of water or drought.
The Cat, Lister and Kryten all decide to go into the depths of the Water Tank to face the creature. They are attacked in their Diving Bell, as tentacles break in, but the gang are able to fight the creature off with sharp instruments. They emerge covered in it's purple blood and ink - no thanks to Rimmer, who was having a panic attack in the Diving Bell control room.
Rimmer goes down to meet them, himself also getting covered in it's blood when Lister throws a severed tentacle at him. The gang then have a vivid group hallucination by the shore of the Water Tank, in which they return to Earth but discover they are 'fictional characters'. However, they eventually break out of the hallucination. It is revealed that the monster was a female Despair Squid, which Cat had brought on board when it was tiny - after he found it on the ocean moon where the SSS Esperanto was discovered, and a similar group hallucination had occurred ("Back to Reality", Series V).
Since this one inhabiting the Water Tank was a female, "hope"-inducing Squid, Lister suggested that they don't kill it, but remove it from the Water Tank, and drop if off at the nearest ocean moon to create some "happy" sea-life.
The gang seemingly had no problems with the Water Tank after these events. (Back to Earth - Series IX)
- The Water Tank presumably stayed fresh though some combination of advanced filtration, and/or possibly stasis.
- It presumably kept the Felis sapiens alive with drinking water in the three million years they were evolving aboard, and so it is possible that the Water Tank "replenishes" itself from traces in space, much like how the Front Ramscoop constantly replenishes the engines with fuel from the Solar Winds.
- The Water Tank presumably irrigates the botanical gardens of Red Dwarf.
Behind the scenes
- The surface of the Water Tank was created digitally, although the interior was shot inside a real enclosed water tank, and a set was built for the Diving Bell. (The Making of Back to Earth)