Phil,
The water sensor is at the bottom of the primary fuel filter. If water reaches the level of the probe the alarm is triggered. There is a plug at the bottom you can remove to drain the sump. I had difficulty removing the plug, the whole sump wanted to turn. The sump is screwed onto the bottom of the filter cartridge.
You should examine the fuel you drain from the sump to verify there was really water in it. If there is a significant amount the filter element may have also absorbed some water, it would be a good time to replace the filter.
After reinstalling the plug you need to turn the engine key on (but do not start the engine) for 10 seconds, then off for 5 seconds. Repeat several times so the electric fuel pump can purge the air from the fuel system. You need to turn the key off after 10 seconds since the pump automatically stops after 10 seconds if you do not start the engine. Turning the key off then back on allows another 10 second run.
Howard