Before beginning repairs to walls or ceilings that have been damaged with water locate and stop the source of the leak first, if not stopped it will certainly ruin the wall material again.
When plaster gets wet the surface will usually erupt as water activates the lime in the putty coat causing bubbling and then flacking as it dries. This damage may be minor and isolated to the surface of the wall or it may involve the whole plaster structure with crumbling brown and scratch coats that fall off the lath.
Sometimes water-damaged plaster will will form a rock hard shell over the wall that must be chipped away with a hammer and chisel-blade joint knife. Under the shell the remaining coats will usually be soft and crumbling.
The first step to repairs is to remove all the damaged wall material back to sound, undamaged plaster. Scrape all degraded material away using a putty knife. This includes all bubbling or peeling paint, plaster putty coat and any brown coat, scratch coat or lath involved.
Test the paint coat immediately surrounding the area to see if it will peel off easily. Try to slip a putty knife under the paint coat and remove all that will come off, back to sound paint.
Remove the dust from the chipping and scraping process and coat the whole damaged area with oil or shellac-based primer-sealer. With water damage, a sealer like this is essential to block residual moisture that would otherwise inhibit bonding of the patching compound and bleed through the finish coating. Failing to prime like this could result in bubbling of the new joint compound and paint.
Stir the primer or shake the can to be sure it's mixed well and coat all affected surfaces including the surrounding wall paint. Let it dry and do a second coat. To help hide stains and make finish coating easier, use a sealer with a white pigment added such as Kilz® or Zinsser's B-I-N®. Let the sealer dry completely before beginning repairs. Shellac and quick-dry primers will dry in about an hour while oil primer can take as long as 12 hours to dry completely.
Use setting-type joint compound to patch plaster that has been wet, ready-mixed will not be hard enough and is vulnerable to any residual moisture in the wall material. To rebuild plaster that has eroded deep down to the sand coats or lath use the process at this link. To make repairs to the surface, putty coat use the process on this page.
Patching the surface will take several thin coats of setting joint compound to fill in the missing plaster, and then smooth out the wall. Mix a small amount of compound and cover the whole damaged area, overlapping onto the surrounding wall, with a coat ¼ inch or more thick. Use the joint knife to butter it like a piece of toast.
Immediately go back and skim off the excess mud floating across the deeper parts in the middle and leaving a thin coat on the surrounding wall. Stroke in parallel rows across the damaged area, from one side to the other without stopping. Try to fill the deepest damage but don't let it buildup higher than the orginal wall surface. If necessary use a long thin board like a 1x3 to scrape off the high points. Ignore any ridges left by the knife blade or other inconsistencies, when the mud has set you can scrape them off before applying another coat.
Let the mud set until it hardens. Scrape off any protruding ridges from the first coat using an upward stroke with the joint knife. Lightly sand the area with course to medium sandpaper to remove any other bumps, etc. in the surface. A completely smooth surface is not necessary here, just remove any high points. Brush off the dust and wipe the area with a clean, damp rag or sponge to remove the scraping and sanding dust before coating the area again with mud.
Apply a second coat of mud buttering the surface as before. Concentrate on fill in the deepest parts of the damage and use a lighter coat around the edges. Immediately skim off the excess mud stroking perpendicular to the first coat. If the first time you use horizontal stroke, use vertical strokes this time. Ignore any ridges left by the knife blade but keep the mud as thin as possible on the surrounding wall surface to minimize sanding when you're done.
When the second coat has set, scrape, sand and wipe off the dust as before. Apply as many additional coat as needed to fill in all the damaged plaster. As you work don't let the mud on the surrounding wall build up to help in blending the finishes together. Don't let high points develop in the overall surface to keep it consistent with the surrounding wall. Reverse direction with each new coat to help in keeping the repair level.
Let the last coat set and dry completely and then sand with 120 sandpaper. Wipe off the dust with a damp rag and prime the new patch and surrounding wall with primer-sealer. Let it dry completely before touching up the paint.
Water stains on walls and ceiling caused by occasional, minor water leaks are easier to repair. Use shellac or primer-sealer to block the stain so that it won't bleed through the touch up paint. We use shellac here but a spray can of white primer will make covering with white finish paint easier.
Coat the stain twice to be sure it is completely sealed. If you're using shellac Wait 10 minutes between coats and let the second coat dry for 15 or 20 minutes. If you're using a white primer check the can for drying time. Touch up using the original paint.