Objection 1. It seems that water ought not to be mixed with the wine, since Christ's sacrifice was foreshadowed by that of Melchisedech, who (Genesis 14:18) is related to have offered up bread and wine only. Consequently it seems that water should not be added in this sacrament.
Objection 2. Further, the various sacraments have their respective matters. But water is the matter of Baptism. Therefore it should not be employed as the matter of this sacrament.
Objection 3. Further, bread and wine are the matter of this sacrament. But nothing is added to the bread. Therefore neither should anything be added to the wine.
On the contrary, Pope Alexander I writes (Ep. 1 ad omnes orth.): "In the sacramental oblations which in mass are offered to the Lord, only bread and wine mixed with water are to be offered in sacrifice."
I answer that, Water ought to be mingled with the wine which is offered in this sacrament. First of all on account of its institution: for it is believed with probability that our Lord instituted this sacrament in wine tempered with water according to the custom of that country: hence it is written (Proverbs 9:5): "Drink the wine which I have mixed for you." Secondly, because it harmonizes with the representation of our Lord's Passion: hence Pope Alexander I says (Ep. 1 ad omnes orth.): "In the Lord's chalice neither wine only nor water only ought to be offered, but both mixed because we read that both flowed from His side in the Passion." Thirdly, because this is adapted for signifying the effect of this sacrament, since as Pope Julius says (Concil. Bracarens iii, Can. 1): "We see that the people are signified by the water, but Christ's blood by the wine. Therefore when water is mixed with the wine in the chalice, the people is made one with Christ." Fourthly, because this is appropriate to the fourth effect of this sacrament, which is the entering into everlasting life: hence Ambrose says (De Sacram. v): "The water flows into the chalice, and springs forth unto everlasting life."
Reply to Objection 1. As Ambrose says (De Sacram. v), just as Christ's sacrifice is denoted by the offering of Melchisedech, so likewise it is signified by the water which flowed from the rock in the desert, according to 1 Corinthians 10:4: "But they drank of the spiritual rock which came after them."
Reply to Objection 2. In Baptism water is used for the purpose of ablution: but in this sacrament it is used by way of refreshment, according to Psalm 22:3: "He hath brought me up on the water of refreshment."
Reply to Objection 3. Bread is made of water and flour; and therefore, since water is mixed with the wine, neither is without water.
Source: Summa Theologica (New Advent)