Structural water molecules are found in many protein-ligand complexes. They are known to be vital in mediating hydrogen-bonding interactions and, in some cases, key for facilitating tight binding. It is thus very important to consider water molecules when attempting to model protein-ligand interactions for cognate ligand identification, virtual screening and drug design. While the rigid treatment of water molecules present in structures is feasible, the more relevant task of treating all possible positions and orientations of water molecules with each possible ligand pose is computationally daunting. Current methods in molecular docking provide partial treatment for such water molecules, with modest success. Here we describe a new method employing dead-end elimination to place water molecules within a binding site, bridging interactions between protein and ligand. Dead-end elimination permits a thorough, though still incomplete, treatment of water placement. The results show that this method is able to place water molecules correctly within known complexes and to create physically reasonable hydrogen bonds. The approach has also been incorporated within an inverse molecular design approach, to model a variety of compounds in the process of de novo ligand design. The inclusion of structural water molecules, combined with ranking based on the electrostatic contribution to binding affinity, improves a number of otherwise poor energetic predictions.