Some historians maintain that Water's Grasp was High Tower, and that the two sites have been confused in later re-tellings. Because Water's Grasp was populated throughout the Mage Wars and into the Ages, this view is not well-supported. The Accepted Histories hold that Water's Grasp and High Tower existed contemporarily, and that Water's Grasp was the center of the alliance that later destroyed High Tower.
Traditional tower-tactics were useless against Water's Grasp. It was too far (around 3 miles from the shore) to attack from land, and ships were vulnerable to assault.
During the early days of the Mage Wars, Water's Grasp led an alliance of towers against High Tower, and the final shot that destroyed High Tower likely originated at Water's Grasp; but the island-city was too far from shore to properly command the regions around the Three Baras, and was constantly at the losing-end of wars with its neighbors. By 3550 B.G.A., Water's Grasp had given up all claim to the surrounding lands.
The city prospered as a valuable trading hub, and acted as a nuetral third-party in mediating disputes. Free of attack, the mages of Water's Grasp developed many of the more advanced spells and techniques, and trained mages from all over the Greater Continent and worlds beyond.
The Agras Plain was never fully taken by the Marcon Alliance, and Water's Grasp retained independance during the Dynastic Period. Towards the late Dynastic and early Second Chaotic, Water's Grasp attained its highest peak of wealth and prosperity.
In 5 B.G.A., Eieber set his sights on the island. If the island cannot be assaulted (he reasoned), relieve it of its island-status.
For six months, Eieber's army worked with exo-mages to reshape the land itself. Meanwhile, Eieber led several campains to take nearby towers, and use them to jam Water's Grasp. Finally, Eieber himself led his troops out onto the new peninsula, and took Water's Grasp easily. Most of the mages were conscripted into Eieber's army and used to win the rest of the war, and few returned to the city.
Water's Grasp lost its status as a great school of magic, and the city quickly fell into disrepair. The last residents left by A.Y. 112, and the peninsula eroded away over the next century. The site sat, abandoned, until A.Y. 1554.
The ruins had been visited, off and on, but no one has ever established a claim to the island. According to Alliance-law, the water belonged to no one. The island itself was essentially the property of the Alliance, and not of the nations that surrounded Lake Bara.
Finally, a group of investors bought the island with the intention of making it into a museum of the Mage Wars. They paid heavily to have the old structures rebuilt, but tourism was marginal (due to remote location) and a few years later the group was forced to sell the island again at a considerable loss.
It was purchased a second time by the Duel-Ussel Family, who exploited a loophole in Alliance law to have the island declared an independent city-state, and converted the museum into a fabulous resort and casino (gambling being illegal in the Alliance and all of the nations on the Agras), on grounds that, as an independent nation, Water's Grasp had never joined the Alliance, and was therefore not subject to Alliance law. Gambling, drug use, and prostitution could all be made legal, and were.
The island had never been self-sufficient. There was not enough land-mass to support agriculture, and so it always relied on trade to support a full-time population. For nearly 300 years, Water's Grasp flourished as a den of iniquity.
In A.Y. 1847, the last King of Duel-Ussel had a daughter, and no other children. As she was the only claimant to the throne, she inherited the island in A.Y. 1871, and immediately closed down all the brothels, gambling halls, and distributaries, evicted everyone from the island, and put the whole place up for sale to the highest bidder.
The Alliance attempted to buy the island, but was unable to approve sufficient funds. Instead, it was bought by the Caisorinan Group, a corporation which owned dozens of resorts all along the Three Baras and the Sword Coast. They were very quick to reopen the various businesses otherwise illegal, but under stricter controls.
For tax reasons (and to skirt laws against basically everything that happened on the island), Water's Grasp was still a separate nation, and Caisorinan very quickly realized its potential for money-laundering operations. For close to a century, the organization (which grew increasingly corrupt and greedy) used the island as a playground for the elite and to conceal its ill-gotten assets.
In A.Y. 1969, Caisorinan's executives were arrested and the company's assets ceased, including Water's Grasp. Finally, the site came under Alliance rule. For a brief time it served as a garrison, but was eventually abandoned again.
Water's Grasp was again abandoned until the mid-to-late Second Age, when the original plans were realized. The resort was rebuilt, this time as a family establishment, and the old Tower (one of only a small handful of mage-towers still standing) became the museum.