I drive a late 1999 E350 PS van. I got a "water in fuel" lamp the other day, and the engine stumbled for a few moments the the light went out and the engine smoothed out again. I got it home and drained the the fuel canister and changed out the fuel filter. There was no water in the fuel. Is there sensor located in the canister? Or else where on the fuel system for the van?

 

It's on the filter housing and has an electrical connector on it both for it, and the fuel heater. I can't remember ever hearing of one going bad, though. Was that the only light that came on?

 

That was the only light I could see.

 

Mine has come on a few times over the years.
I would like to think the fuel had residual water in it.