Though judging from the film’s bad reviews, I understand most critics did not interpret director M. Night Shyamalan’s intentions as going anywhere near a parody meant to deconstruct the traditional narrative patterns used by fairytales, my reading of this film is certainly around that genre. Frankly, I just couldn’t stop laughing throughout the whole thing.
What Shyamlan does is to take all the typical bits and pieces that make up a classical fairytale (characters with magic powers, a complicated plot that needs to be deciphered etc.), pull them out of their normal setting (which would probably be an old castle, an enchanted forest or something else of this kind) and relocate them in the most prosaic place possible: a block of flats! Can you have a fairytale in a block of flats? Shyamalan is careful enough to find a modern-day, urban equivalent (a neighbour) for each of the archetypal characters you normally find in a fairy-tale. There is a “princess” (the narf / lady in the water), a “guardian”, a “healer”, an “interpreter”, a “scrunt” and a few more others. There is also the traditional confrontation between good and evil, but in addition I see plenty of hints all over the place that this is just a subversive representation of stereotypical formulas. Among them, I found the funniest and the most revealing to be the voice of the character called Harry Farber, who functions as a sort of meta-narrator framing the story according to the expectations raised by a classical narrative pattern (but doing so on an obviously satirical tone).
Though I understand that after films like The Sixth Sense and Signs, reviewers are not very willing to associate Shyamalan with parody and satire, I think this is a perfectly viable reading. Briefly put, Lady in the Water's script is nothing but a sample of Postmodern writing reevaluating traditional narrative structures.