How to Get the Underwater Materia in "Final Fantasy 7"by Dan Ketchum ; Updated September 22, 2017
At its core, Final Fantasy VII revolves around materia. This mystical crystallized element not only serves as a central plot device, Cloud and crew also rely on it for performing magic, summoning creatures and boosting stats. The Underwater Materia --- which lets you breathe under the sea -- is an essential item for chipping away at the optional boss Emerald Weapon's staggering 1 million hit points.To get this rare materia, you first have to nab the Guidebook item and do a little trading in the village of Kalm.
Getting the Guidebook
Enter the Underwater Reactor on the coast of Junon from the world map. Pay 10 gil to take the elevator, then, in the hallway, head through the door marked by the red arrow that points to the left. Walk down the street until you end up in another hallway.
Walk through the door marked “1” to descend deeper into the reactor, then travel past the dog and through the hallway. Head down the steps and through the open doors in the next two corridors, then down another elevator. Hang a right out of the elevator door to enter the underwater tunnel.
Wander the first screen in the tunnel to prompt random battles until you fight an enemy called Ghost Ship. As a fairly common enemy, it should only take a few battles before Ghost Ship appears. Throughout the battle, continually have one party member use the Morph ability -- obtained from the Morph Materia, found in the Temple of the Ancients -- on the Ghost Ship while the others attack. This ability changes the Ghost Ship into the Guidebook item, which you'll receive after defeating the enemy. Make your way out of the Reactor and back to the world map.
Trading with the Traveler
Travel to Kalm, the village just outside of Midgar, on the world map.
Enter the rightmost house in the village, located right by the archway, and go upstairs. Speak to the man there. This traveler will, somewhat cryptically, tell you that he's seeking the items called “Guidebook,” “Desert Rose” and “Earth Harp.”
Choose the “Trade” option after the man asks you for the Guidebook. The traveler will say it's a “done deal” and fetch the Underwater Materia from his cabinet. Pick up the purple crystal from the middle of the room. Be sure to equip it from the Materia menu before you face the Emerald Weapon
At the Temple of the Ancients, you can find the Morph Materia in the hallway filled with rolling rocks. You'll see a short hallway and a pool of purple water branching off to the left, with the yellow materia right in front of the pool. 
After you defeat the Emerald Weapon, visit the man in Kalm again. He'll trade you the Earth Harp that you get from the Weapon for the Master Command, Master Magic and Master Summon Materia. If you take down the Ruby Weapon and get the Desert Rose, he'll swap your spoils for a gold chocobo. 
The Underwater Materia does not level up and it never grows into another materia. Removing the timer from the Emerald Weapon battle is its sole purpose.
If you attempt to fight the Emerald Weapon without equipping the Underwater Materia, you'll have a 20-minute time limit. While it's not impossible to beat the Weapon under this time limit, it does make the battle exponentially more difficult.
- link Final Fantasy Wiki: Materia (“Final Fantasy VII”)
- link Final Fantasy Wiki: Independent Materia (“Final Fantasy VII”)
- link Final Fantasy Wiki: Emerald Weapon
- link YouTube: “Final Fantasy VII” -- Kalm Traveler (Guide Book and Underwater Materia) -- (PS1/PC)
- link Final Fantasy Wiki: Poach
- link Final Fantasy Wiki: Kalm Traveler
- link YouTube: "Final Fantasy VII" Walkthrough Part 55 Temple of the Ancients