Is it true that the first living things on earth lived in water?

yes - water is a very good medium when it comes to biochemical reactions

Hi Brooke,

As Manabu says water is a good medium for biochemistry.  This is why NASA is looking for water, or signs of it on other planets.  If we are going to find extraterrestrial life, it is likely that if it is anything like us (biologically, that is) it will need water to exist, and liquid water at that.