To be "born of water and the Spirit" means experiencing a spiritual rebirth, which is necessary for salvation and entry into God's kingdom. While interpretations vary—ranging from references to Ezekiel's prophecy, physical birth, baptism, or spiritual cleansing—all agree that true regeneration comes through faith in Jesus Christ.
The context of John 3:5 is talking about how to be saved (how to enter the kingdom of God).
There are several views as to what Jesus meant. He could be alluding to the passage in Ezekiel about God’s future promise to save and restore Israel (Ezekiel 36:26-27), talking about literal birth, speaking of water baptism, or purely talking about spiritual cleansing.
Regardless of the debate about the meaning of “born of water and the Spirit” means, no one is saved without being spiritually transformed by belief in Jesus’ life and death. Jesus contrasted those who believed in Him (John 3:15) with those who did not (John 3:18) as the difference between entering and not entering the kingdom of God. Accepting Christ as Savior means being born again, a “new creation” (2 Corinthians 5:17).
In John 3:5, Jesus may have been alluding to a key text in Ezekiel that describes the salvation of Israel. If this view is correct, then Jesus is figuratively talking about a spiritual cleansing (c.f., Ezekiel 36:25).
However, not everyone is convinced about this. Another view is that Jesus was talking about water baptism and Spirit baptism. Support for this is that all earlier uses of water in John refer to water baptism (John 1:26, 31, and 33). However, this goes against the teaching that we’re saved by faith alone (Romans 3:22; c.f., Ephesians 2:1-–10, Galatians 2:16, and Titus 3:4-–7). Also, the reference Jesus uses to Moses lifting the serpent in the wilderness focuses on belief, not water baptism (John 3:14-16).
A third understanding is that “born of water” is a metaphor for physical birth. Support for that is the immediate context where Nicodemus is asking how a man can be physically born again. This view finds support in the fact that unborn babies live in a sac of amniotic fluid. We even use the expression “her water broke” when it’s time for birth. If this view is correct, then Jesus meant that everyone must be born twice to be saved: once from his mother (what everyone experiences) and once spiritually (what only believers experience).
A fourth interpretation is that “water and the Spirit” is a “double-metaphor” where both words mean the same thing, namely spiritual regeneration. Support for this is that the word “the” is not in Greek, with a literal translation being “water and Spirit.” This means it’s possible there is less of a separation between the two words than English translations generally imply. Also, it is noted that water is used as a metaphor for the Spirit later in John (John 4:10, 13-15; 7:38). Finally, “Spirit” and “water and Spirit” appear to be parallel ideas. In John 3:5, Jesus says, “born of water and Spirit” but in John 3:8 he just says, “born of the Spirit.” By not repeating “water,” this view argues that “born of water and Spirit” is the same as “born of the Spirit.”
We can be so concerned with dissecting the meaning of a phrase that we can miss the main point! Whatever Jesus meant by “water and the Spirit,” it is clear that each possible view is at least partially on the right track. Each understands that a second birth is the cleansing and transformation by the Spirit and is needed before someone can enter the kingdom of God.
In John 3:1-21, Jesus was teaching Nicodemus that one must be “born again” to be saved. To be born again means that we must be internally transformed. That comes by our belief (John 3:15) that Jesus was sent to bring salvation (John 3:16).
What are we to believe about Jesus? We must confess that He is fully God (Colossians 1:19), and that He added on humanity to be like us (Philippians 2:6-8). We must also believe that, unlike us, He never sinned (1 Peter 2:22). Since death is only required for sinners (Romans 6:23), He did not have to die. However, God sent Him to save sinners by crushing Him for our sin (Isaiah 53:5). That is, Jesus died in the place of sinners and paid the penalty of death that they owed (1 John 4:10).
That is what we must believe about Jesus. When we do, we are born again and made a new creature by the Spirit. As believers, we are “born of water and the Spirit” and will enter the kingdom of God (John 3:5).