The watergun is available for use in the chapter "Fun and Games", when Riley surprises Ellie by showing her their previously-confiscated pair of waterguns. Riley mentions how she managed to steal them back, almost being killed in the process. Ellie picks them up, handing one to Riley. The two then engage in a watergun fight. After the fight, Riley gives Ellie both the waterguns as she will be leaving with the Fireflies and the guns will serve her no purpose.
The watergun has an unlimited amount of water, although it needs to be pumped often in order to continuously shoot the water. Pressing on the PlayStation 3, or on the PlayStation 4, pumps the water gun. Each pumping action restores 20% of the watergun's capacity. Both Ellie and Riley have a "Soak Level" which determines how wet they are when squirting each other with the gun. The first one to fill up the bar loses the watergun fight.
During the game of "Cat and Mouse", the gun works as a normal weapon with a single shot on target being enough to count as a "kill" or victory for the user.