As almost of human activities, the water rocket hobby in not without risk, and it is good to know the mains. This is the goal of this page, however I haven't the pretentious to be exhaustive. In all the cases, the we have to act with proper judgment and vigilance.
I classify, arbitrarily, the risks in 3 categories : those linked to the building of the rockets, those linkes to the tests before the launch and then those relating to the launches.
To build a rocket we have to use some tools, as cutters, and materials, mainly the glues, which are not inoffensive. It is important, to avoid accidents, to work with method and tidiness with respect of the instructions given by the manufacturers.
Specially, when gluing with polyurethane or cyanoacrilate glu, wear protective gloves.
Before the launch of a new rocket or an old one which has been crashed, it's good to make a test under pressure. This avoid to have bad suprise during the launch. Specially if the body of the rocket is composed of two bottles spliced together.
The main risk is, of course, the explosion of the bottle. A such explosion is dangerous first because the noise can cause hearing lesion and then because many sharp pieces of plastic are throw away.
To limit the effects of such explosion, test always a rocket full of water and stay at a safe distance of any rocket under pressure.
This is, of course, the most dangerous phase (but don't dramatize anything), specially because there are often many people around the launch area and these is a kind of festive atmosphere, which are scarcely propitious for vigilance and safety.
First risk, and the most important by the damages that it can cause, the fall of a rocket without slow down device (even if it is inexistant or if it doesn't work). We have to know that a very simple rocket, made with a 1.5 liter bottle which have fins and a nose cone, made with a top of another bottle, can reaches about 50 m (165 Feet) and hit the ground at a velocity of 100 Km/h (60 mph). It would be better to not be underneath. It's not easy to forecast the precise location of the crash down, so the vigilance is required.
First precaution, do launches only on wide and clear where it's possible to verify if there is somebody (or something) before the launch.
Then, warn all the people there, that they must be vigilant during the flight and always look at the rocket trajectory. Ask to the adults to watch their children.
Second risk, the explosion of a rocket when the pumping phase. To avoid this risk, test your rocket before the launch (see paragraph above), specially if the rocket has made several flight including some crash down or if it was damaged by any manner (transport, storage, repairing, or what ever).
During the pressurization, stay well enough far from the launch pad and above all, keep everybody far away from the area while the rocket under pressure is on the launcher.
Third risk, the mess and the agitation. A launch meeting leads to have on the area a whole bunch of things (rockets, launchers, pumps, tanks of water, tools, and so on...), so if there is a big mess and much agitation, there is a risk of damages or injuries. To illustrate that, I cite an anecdote : During a launch meeting on an area where there was many people and specially many kids (but I'll never do that). It happens two incidents, fortunately minor. The first one was the arrival, do not wish, of a soccer ball in the middle of my rockets (one of them did not survive its wounds), the second one would be more serious. While I have just put the pressure in a rocket and I went to take the string which I use for release the rocket, a kid, who is running, hits the string and trigger off the launch. Fortunately, nobody was near the launcher at this time, but it would be possible, I was verifying that all is Ok for the launch and I could be hit by the rocket...
So be always careful.