First of all, lets just define rust. Rust occurs when iron combines with oxygen to form iron oxide. There are different types of iron oxide but rust forms only when there is plenty of oxygen available and is characterised by that red-brown colour.
Now iron will not react with the oxygen in the air. Do you remember when you were in kindergarten? Your teacher probably asked you to hold hands with another child when you went outside. Well in air an oxygen travels around in partnership with another oxygen. In this combined state the oxygen in the air does not react with iron.
When the oxygen in the air dissolves in water (this oxygen is what allows fish and other aquatic life to breathe), each oxygen separates from its partner and goes round on its own. Iron can combine with oxygen in this singular state and does so.
So iron does not react with water; it reacts with the oxygen contained in the water. You can prove this with a simple experiment:
1) Place an iron nail in a test tube with water
2) Place an iron nail in a test tube with recently boiled water (boiling removes the free oxygen in the water)and seal it with a rubber bung to prevent any oxygen getting in.
3)Place an iron in a test tube with oil (oxygen cannot dissolve in oil)
4)Place an iron nail in a test tube with a small amount of calcium chloride to keep the air dry and seal the test tube to prevent continued moisture entering.
Only no. 1 will show rusting.
and here is a more lengthy explanation
Rust is the common name for a very common compound, iron oxide. Iron oxide, the chemical Fe2O3, is common because iron combines very readily with oxygen -- so readily, in fact, that pure iron is only rarely found in nature. Iron (or steel) rusting is an example of corrosion -- an electrochemical process involving an anode (a piece of metal that readily gives up electrons), an electrolyte (a liquid that helps electrons move) and a cathode (a piece of metal that readily accepts electrons). When a piece of metal corrodes, the electrolyte helps provide oxygen to the anode. As oxygen combines with the metal, electrons are liberated. When they flow through the electrolyte to the cathode, the metal of the anode disappears, swept away by the electrical flow or converted into metal cations in a form such as rust.
For iron to become iron oxide, three things are required: iron, water and oxygen. Here's what happens when the three get together:
When a drop of water hits an iron object, two things begin to happen almost immediately. First, the water, a good electrolyte, combines with carbon dioxide in the air to form a weak carbonic acid, an even better electrolyte. As the acid is formed and the iron dissolved, some of the water will begin to break down into its component pieces -- hydrogen and oxygen. The free oxygen and dissolved iron bond into iron oxide, in the process freeing electrons. The electrons liberated from the anode portion of the iron flow to the cathode, which may be a piece of a metal less electrically reactive than iron, or another point on the piece of iron itself.
The chemical compounds found in liquids like acid rain, seawater and the salt-loaded spray from snow-belt roads make them better electrolytes than pure water, allowing their presence to speed the process of rusting on iron and other forms of corrosion on other metals.
Both these answers found on the net...because while I am extremely adept at finding rust...I am not good at explaining why....