Water is often viewed as detrimental to organic halide perovskite stability. However, evidence highlights its efficacy as a solvent during organic perovskite liquid synthesis. This paradox prompts an investigation into water’s influence on perovskite nanoclusters. Employing first principle calculations and ab initio molecular dynamics simulations, surprisingly, we discover some subsurface layers of methylammonium lead iodide (MAPbI) nanoclusters exhibit stronger relaxation than surface layers. Moreover, a strong quantum confinement effect enhances the band gap of MAPbI as the nanocluster size decreases. Notably, the water molecules above MAPbI nanoclusters induce rich localized defect states, generating low-lying shallow states above the valence band for the small amounts of surface water molecules and band-like deep states across the whole gap for large nanoclusters. This work provides insights into water’s role in the electronic structure and structural evolution of perovskite nanoclusters, aiding the design of water-resistant layers to protect perovskite quantum dots from ambient humidity.