In nearly all cases, water damage will indeed show up on a Carfax report. A Carfax report will show anything that affects the title of a vehicle, including repairs completed because of water damage. Additionally, in some states, the title will actually state that the car has been submerged at some point, which will show up when a Carfax report is run. However, if an insurance claim was never made or if the vehicle was repaired outside of the network of dealerships and shops by an individual, there is a slight chance the water damage will not show up. Though this is a possibility, water damage is usually serious enough that professional repair involving insurance is generally necessary.
For more info, see 4 Facts About Car Water Damage