According to Wikipedia the waterbed was first seen sometime in the early 1800's.

Labeled the 'Hydrostatic Bed', it was invented by Dr. Neil Arnott and was
first used professionally in 1873, at St Bartholomew’s Hospital in London.
Its original purpose was to prevent bedsores on the bedridden including
invalid's, the incapacitated and the ailing who would be flat on their back
for an extended period of time.
It mainly consisted of a large tub of water covered by a rubber-type overlay
sealed with varnish to prevent leaks. It was topped off with regular bedding
and covers. This of course helped the patient by being more buoyant and less
stringent on the body, and having a more positive effect on the patients’
health.

There are other mentions of water being used for a bed in various points in
history.
- Over 3,000 years ago in Persia, goat skins were filled with water and used
by the elderly, and probably also royalty.
- In 1883 Dr. William Hooper of England patented a version of a waterbed.
- Harrods department store sold waterbeds via direct mail in 1895.

However, all the above methods never gained wide acceptance, most notably
because of the inefficient method of holding the water, and also regulating
a comfortable temperature.

Then in the 1960s, vinyl came along.

It was this material that led the way to waterbeds becoming the sensation
they would become.

In 1968 the modern waterbed was born at San Francisco State University by
students Charles Prior Hall, Paul Heckel, and Evan Fawkes. Using it as a
project for his Master's Thesis, Hall was its main designer and architect.
Amazingly, his first attempts included cornstarch (too uncomfortable) and
Jell-O (which was the wrong consistency and temperature, and began to
decompose).
Ultimately he used a vinyl bag (or mattress) which was filled with water.
Weighing in at around 300 pounds, he even had the foresight to keep the
water heated, replete with a temperature control device. While demonstrating
his 'pleasure pit', it became quite popular with the students at the
University. Hall remarked "Everybody just ended up frolicking on the
waterbed"......whatever that might have meant, especially while involving
college students.
Hall did eventually receive a patent and began to design, build and market
waterbeds with his company 'Innerspace Environments'. It started a veritable
revolution in sleep.....and sex.
Rather than just inventing a new way to sleep comfortably, Hall unintendedly
also provided a new way to enjoy sex.
His bed invention became a wild craze, especially during the '80s and '90s,
with sales comprising 22% of all mattress sales in the U.S. alone.

Early waterbeds were constructed with a single (free flow) chamber and cause
displacement of the water, taking time for the water to settle down. More
modern waterbeds employ more sophisticated 'motionless' methods, usually
involving separate chambers and fiber batting. Even better, waterbeds can be
made using a combination of interconnected air and water chambers, producing
a much more 'waveless' environment. Check out our selection of waterbed mattresses.

There are generally two types of waterbeds on the market:

Softside waterbeds - Looks like a conventional mattress, you can even use
standard bed frames, sheets, and covers. The bladder itself is zipped inside
of a cover and held in place by foam bolsters (or cushioning) around the
edge.
Hardside waterbeds - A traditional looking waterbed frame with four 'hard
sides', basically used to 'hold' the vinyl bladder in place. The deck below
the bladder is made of plywood.