A fuel filter comprises a filter housing, a filter assembly positioned within said filter housing, a fuel inlet adapted to receive fuel into the filter housing, and a fuel outlet. The filter assembly may have a first end cap, a second end cap, and a filter element positioned therebetween. The filter element may comprise a particulate filter component and a water sensing component, the water sensing component having a center tube, a water sensing layer, and a screen. The water sensing layer may wrap around at least a portion of the center tube and be secured in place by the screen. The water sensing layer comprises a gelling and thickening agent, such as methyl hydroxyethyl cellulose. In operation, the fuel filter is configured to direct fuel received at the fuel inlet to the fuel outlet by way of the water sensing component and the particulate filter component.