This is the underwater path to the Dragon's Lair. Don't bother with the chest on the ground—it is not the one you are looking for, nor does it have anything in it. Swim to the opening in the upper left corner.

Once there, use an action to get out of the water. To the left is the Dragon's Lair. Although I've never sat around to find out, I don't think Gram can stay underwater and/or swim forever, so don't spent too much time playing around.

If you took the bucket with you, fill it after you get out of the water by using it on the water.