A typical feature of shale gas reservoirs is that they contain a significant amount of adsorbed gas. The evaluation and prediction of adsorbed gas play important roles in shale gas exploration and development. However, the presence of water in shale reservoirs makes this work more difficult. In recent years, research related to the occurrence and distribution of water in shales and its effect on methane adsorption have become a prominent issue. In this paper, the factors controlling water in shale nanopores and its influence on methane adsorption were systematically reviewed. It is revealed that the connate water content in shales and their water absorption capacity vary widely, and both are mainly related to the organic matter contents and properties and mineral compositions. The water absorption capacity of organic matter in shales is mainly affected by its nanopore content, structure and surface chemical properties (such as the type and amount of oxygen-containing functional groups), which are jointly constrained by its kerogen type and maturity. Even under moist conditions, the organic matter in shales still shows a strong methane adsorption capacity, although the water decreases the adsorption capacity to some extent. The hydrophilicity of different minerals in shales varies greatly, but the type and amount of clay minerals are the main factors affecting the adsorbed water content or water adsorption capacity of shales. The nanopore structure and characteristics of shales, such as the pore type, specific surface area, pore size distribution and heterogeneity, directly impact the occurrence and distribution of water. The competition for adsorption between water and methane at some adsorption sites is the main mechanism for the reduction in the methane adsorption capacity of moist shales. In addition, external environmental factors, such as pressure and temperature, can change the distribution and occurrence of water in shales and, thus, the influence of water on the methane adsorption capacity to a certain extent. This paper also discusses some current issues regarding the effect of water on methane adsorption capacity and highlights future research directions in this field.