Smooth, compact and defect free morphology of perovskite is highly desired for enhanced device performance. Several routes such as thermal annealing, use of solvent mixtures, growth under controlled humidity has been adopted to obtain crystalline, smooth and defect free perovskite film. Herein we showed direct use of water (H2O) as co-solvent in precursor solution and have optimized the water content required to obtain smooth and dense film. Varying concentration of water was used in precursor solution of CH3NH3I and PbI2 mixed in γ-butyrolactone (GBL) and dimethylsulfoxide (DMSO). Perovskite films were crystallized using toluene assisted solvent engineering method using GBL:DMSO:H2O as solvent mixture. The amount of water was varied from 1% to 25%, which resulted in change in film morphology and perovskite crystallinity. It was concluded that an appropriate amount of water is required to assist the crystallization process to obtain smooth pin-hole free morphology. The change in morphology led to improved fill factor in the device, with highest efficiency ~14%, which was significantly higher than devices made from perovskite film without adding water. We also showed that addition of up to 25% by volume of water does not significantly change the device performance.