It looks that way. Although I think it's the pearl doing this rather than the water.

[After all, nothing had happened until she dropped the pearl in. Zelda nods in response to Inigo's question. As the image of herself takes the diadem from Sonia and ties it around her forehead, she sighs wistfully before pulling her gaze away and focusing on Inigo instead.]

I have no idea why. But... I suppose I'm grateful all the same. To have a chance to see this.