When you get the water of life and plant it, it functions just normally. One extra life and something to convert hunger into sanity.
When you save and quit, then come back, you'll have some max health taken away as if it were a meat effigy. You can do a temporary fix of this if you shovel it up, save and quit, come back and replant it again at least. Still, pretty sure the magic flower is not supposed to do this considering it doesn't take your max health on planting.
Steps to Reproduce
Obtain Water of Life. Plant it. Save and Quit. Come back onto save. Look at your max health.
This issue has not been confirmed by a developer yet.