From Sonic Retro
In addition to serving as a one-shot barrier against damage and life loss, the Water Shield prevents drowning, allowing characters to stroll along underwater for as long as they want without fear of the dreaded drowning music. It is also capable of repelling certain Badnik-fired projectiles, such as the Bloominator's spike balls and Blastoid's bullets.
When playing as Sonic, holding a Water Shield exchanges the Insta-Shield move with a Bounce Attack, allowing the hedgehog to barrel downwards on top of enemies, and springing back up higher than normal jump height.
Due to being two halves of the same game, the water sheild returns in Sonic & Knuckles, however the split leaves it without its primary use - to let characters breathe underwater. Sonic & Knuckles has no underwater segments, in contrast to Sonic 3, where every level, bar Marble Garden Zone, has underwater sections.
The Water Shield's next appearence is in Sonic R. Here it has none of the same functions as the Sonic 3 version, instead allowing its holder to walk across the surface of a body of water without sinking. It is, however, one-shot; on returning to dry land, the shield evaporates.
It returns once more in a few Sonic Generations challenge acts with a true return to form, allowing bubble bounces and the ability to breathe underwater. When the "Aqua Shield Challenge" has been completed, the Water Shield can be bought in the skill shop and, if equipped, can be activated at any time for Classic Sonic by pressing /.
Sonic the Hedgehog and Sonic the Hedgehog 2 (2013 editions)
The Water Shield appears in iOS/Android remake of the original game and its sequel if you set "Items" to "S1+S3" or "S2+S3" in the Level Select menu (or place a Water Shield monitor in debug mode). It behaves exactly as it does in Sonic 3 & Knuckles, including the bounce attack. In the Sonic 2 remake, the Water Shield also appears as a random item in VS. Mode.
It appears again in Sonic Lost World as a power-up the player can receive from Miiverse in the Wii U version, or found within levels in the 3DS version. It does not come with the ability to perform the bubble bounce, but it still lets the player breathe underwater.
The Water Shield returns once again in Sonic Mania, functioning almost exactly as it did in Sonic 3 & Knuckles, and can also protect the player from the bubbling blue chemical baths in Chemical Plant Zone. The bounce cannot be performed in as quick of succession compared to Sonic 3, with there being a very brief cooldown time between the ability to bounce again. It also behaves differently when bouncing on slopes; rather than always bouncing straight up, it will bounce perpendicularly to the slope.