The Water Kung Fu Teacher is a Shop NPC. He can teach you the Water Kung Fu fighting style for 750,000. When you enter the Underwater City and face the palace, he is located behind the palace directly towards the right of it. He is inside the part of the wall with a slight color difference. This wall has no collision, so you can walk through it. He can also be found at Hot and Cold and the Castle on the Sea. There is no level requirement to talk to him or purchase the fighting style.
Water Kung Fu Teacher was moved in Update 13-14.