Do not drain all the water from your water bed. You will be able to locate the leak with the water still inside.
Use a large towel to soak up any water between your mattress and the waterbed's liner. You might need a few towels if the leak is severe.
Inspect the sides, top and corners of the mattress thoroughly to try and find the leak. A leak will almost never occur on the bottom of the waterbed mattress.
Apply a small amount of pressure to the mattress by kneeling on it if you can't find the leak by visual inspection.
Recheck the sides, top and corners of the mattress while applying pressure and using an absorbent tissue. Run the tissue slowly along the mattress until you see it get wet. This will be the location of the leak.