Water clouds are expected to form in cool brown dwarfs (Y dwarfs) and giant planets with equilibrium temperatures near or below that of Earth, drastically altering their atmospheric composition as probed by remote sensing, their albedo, and their emission spectrum. Cloud distributions are controlled by microphysical processes such as nucleation and condensation, which hasn’t been considered in detail for water clouds in H/He atmospheres. Here we use the 1D Community Aerosol and Radiation Model for Atmospheres (CARMA) to investigate the microphysics of water clouds on temperate objects to constrain their typical particle sizes and vertical extent. We compute a small grid of Y dwarf atmosphere models spanning surface temperatures between 250K and 450K and log(g) between 3.5 and 4.5, as well as temperate giant exoplanet models for a Jupiter-like world placed at 1, 2, and 3 AU from a sun-like host star. Our model considers homogeneous and heterogeneous nucleation of water; for cloud condensation nuclei we investigate the efficacy of meteoritic dust, organic photochemical hazes, and potassium chloride clouds. We compare our results to the Ackerman & Marley parameterization of cloud physics to extract the optimal sedimentation efficiency parameter (fsed) for water clouds, finding a transition in fsed from the base of the cloud (>3) to the cloud top (~0.5). Furthermore, we generate simulated emission and reflected light spectra to inform future observations of Y dwarfs and temperate giant planets by ground- and space-based telescopes such as the extremely large telescopes, the James Webb Space Telescope, and the Roman Space telescope. Our results are the first step towards constraining the impact of water clouds on smaller and cooler worlds, such as K2-18b and habitable rocky planets.