Does water block NFC?
Water absorbs some energy and alters the tag tuning, so it reduces range rather than blocking the read. At 13.56 MHz the effect is far milder than at the UHF frequencies used for warehouse tags. A wet tag usually still reads, and a tag submerged in a thick volume of water may not.
What water actually does
Two things, neither of them blocking. It absorbs a little energy, converting it to heat, and being electrically significant in contact with the antenna it shifts the tuning.
The result is reduced range rather than a wall. A tag with rain on it, a card taken out of a wet pocket, a tag behind a thin layer of moisture: these generally still read, perhaps at a shorter distance.
Why UHF suffers far more
This is the source of most of the confusion, because a great deal of writing about RFID and water is about a different frequency band entirely.
UHF systems around 900 MHz are notoriously defeated by water and by anything containing it, including human bodies and cases of drinks. At those frequencies water absorbs energy efficiently and the technology depends on radiated signal travelling several metres, so absorption anywhere along the path is fatal.
NFC at 13.56 MHz is in a different regime on both counts: the coupling is magnetic and local rather than radiated across a distance, and water absorbs less at this frequency. Advice inherited from UHF deployments overstates the problem considerably.
The cases that matter
A thick volume of water between the phone and the tag will stop a read, because at two centimetres of working distance there is not much room for anything else. A tag at the bottom of a full bottle is not going to be read through the contents.
A tag in contact with a large wet mass behaves like a detuned tag, which means the failure can be complete rather than partial. Wet cardboard, saturated fabric and damp soil are the practical examples.
Water inside the tag is a different and permanent problem. Moisture reaching the chip bond or corroding the printed aluminium antenna destroys the tag, and no amount of drying brings it back.
Building for wet environments
Specify sealed tags rather than hoping. Laundry tags, tags encapsulated in PVC or epoxy, and tags rated for immersion exist precisely because paper faced stickers do not survive.
Keep in mind that a rating describes ingress protection, not read performance. A tag that survives a wash cycle intact will still read poorly while sitting in a puddle, and both facts need to be true for a deployment to work.
And test with the item wet, not dry. A tag on a dry container and the same tag on a container covered in condensation are two different measurements.
Frequently asked questions
Can I read a tag underwater?
Through a thin layer, often yes. Through several centimetres of water, no, because the working distance is only a few centimetres to begin with and water occupies that budget.
Does rain stop a tag working outdoors?
Rarely, if the tag is sealed. A film of water on the surface has a modest effect, and the more likely outdoor failure is water reaching the chip over time and destroying it.
Do NFC tags work on bottles of liquid?
Generally yes, if the tag is on the outside and read from the outside. This is one of the clearest differences from UHF, where liquid contents are a well known obstacle.
Does the human body block NFC?
Tissue is largely water and behaves similarly: a hand pressed behind a tag reduces range noticeably. It is a real effect and it explains why a card sometimes reads better on a table than in a hand.