Alcohol production from CO2 hydrogenation is a cutting‐edge process in sustainable chemistry that holds vast promise for addressing climate change by recycling and repurposing emissions. Many strategies have been proposed to improve the process efficiency. In‐situ generated, and trace amounts of water added to the feed stream have recently proved to be determinant to promote key reaction steps, increasing alcohol selectivity and yield. Here, we discuss the main findings that led to an atomic‐level understanding of water promotional effects in CO2 hydrogenation to alcohols. H2O and the products resultant from its dissociation (OH and O) can act in different ways, stabilizing intermediates and active sites or participating in the hydrogen transfer mechanisms during the reaction. Gaining insights into the mechanisms underlying water promotion offers a cost‐effective strategy for enhancing alcohol production efficiency.