After finding the quest item of the Serpent's Kiss for the Perils in Diplomacy quest, I jumped off the boat in an attempt to jump onto the northernmost pier near the boat. After landing in the water, I swam up to the section of dock between the two smaller boats and across from the enchanter. Upon trying to jump on the dock, I instead fell through the water and found myself walking on the bottom of the lake there. The water was all gone but the rest of the environment and the players remained. Once I got close to the surface of where the water would be, I heard a splash and found myself swimming.

UPDATE: The bug is repeatable. The exact spot seems to be right to the left (when in the water and facing the enchanters) of the dock support pillar that is almost across from the enchanter (the one that doesn't go up above the floor of the dock like the others do).