The use of water in hydrothermal and supercritical conditions as a medium to upgrade heavy oil fractions has shown promising results and presents an interesting alternative for heavy oil processing. Water at these conditions improves transport properties increasing the solubility in the medium and reducing the viscosity of the oil, which facilitates the upgrading process. This review focuses on the use of water as a medium to recover and upgrade heavy oils. An analysis of the main reactions occurring, effect of process conditions, and role of water in the reaction mechanism is carried out based on experimental results found in the literature. Studies performed with model compounds that have enabled a proper understanding of the reaction mechanisms, kinetics, and effect of process conditions in the upgrading of heavy oil in near critical or supercritical water are included. An overview of the main challenges of the technology such as corrosion and salt deposition as well as some innovative reactor designs to solve them is provided. Information regarding research carried out in this field has been linked to the growing industrial interest in the technology showing recent developments and registration of patents on reactor designs and processes involving heavy oil upgrading in near and supercritical water.