When the Fellowship arrived to Moria, the Watcher in the Water attacked them – just as Gandalf had solved the riddle and opened the gate. The scene is described as follows:
[Gandalf] strode forward and set his foot on the lowest step. But at that moment several things happened. Frodo felt something seize him by the ankle, and he fell with a cry. Bill the pony gave a wild neigh of fear, and turned tail and dashed away along the lakeside into the darkness. Sam leaped after him, and then hearing Frodo’s cry he ran back again, weeping and cursing. The others swung round and saw the waters of the lake seething, as if a host of snakes were swimming up from the southern end.
Out from the water a long sinuous tentacle had crawled; it was pale-green and luminous and wet. Its fingered end had hold of Frodo’s foot and was dragging him into the water. Sam on his knees was now slashing at it with a knife.
The arm let go of Frodo, and Sam pulled him away, crying out for help. Twenty others arms came rippling out. The dark water boiled, and there was a hideous stench.
‘Into the gateway! Up the stairs! Quick!’ shouted Gandalf leaping back. Rousing them from the horror that seemed to have rooted all but Sam to the ground where they stood, he drove them forward.Fellowship of the Ring
There is one interesting element in the attack, which is even pointed out later by Gandalf in his internal monologue: the Watcher went after Frodo first of all. Why?
The obvious conclusion is that it sensed the Ring. Later, we see that not only Nazgul, but all Servants of the Enemy are affected by the Ring: when Sam has One Ring in the Tower of Cirith Ungol, its mere presence is enough to terrify Orcs.
This does not mean that the Watcher is subservient to Sauron. Dragons, too, are drawn to the Rings of Power, and they are not necessarily subordinate to Sauron. However, there are elements that do point to this possibility. First, its role – Watcher in the Water. It watched over the entrance to Moria, essentially trapping anyone there into a pincer between the Western entrance and the Orcs and the Balrog close to the Eastern entrance. Second, it appeared out of nowhere. The lake was not natural, it was made by the Orcs (or maybe even the Watcher) blocking the stream – and that is when the first mention of the Watcher occurs. Gandalf passed through Moria in T.A. 2845., when there was no Watcher, and it was there by the time of Balin’s expedition in 2989. It is very likely the Watcher had been placed there not long before, or even at the time, of the arrival of the Balin’s expedition. It is stated in the Book of Mazarbul that the Watcher in the Water killed Oin and that the lake had reached the Western entrance in 2994:
Then there are four lines smeared so that I can only read went 5 days ago. The last lines run the pool is up to the wall at Westgate. The Watcher in the Water took Óin. We cannot get out. The end comes, and then drums, drums in the deep. I wonder what that means. The last thing written is in a trailing scrawl of elf-letters: they are coming. There is nothing more.’ Gandalf paused and stood in silent thought.Fellowship of the Ring
Of course, it is also possible that it merely arrived there from some underground stream in Moria – the Fellowship passes many of those (though too small for the Watcher), and Gandalf notes that there are many ancient beings in the depths of the world. This may well set up Balrog, but also the Watcher. As noted already, the evil in the Ring will have drawn in an evil being such as a Watcher, regardless of whether it was affiliated with Sauron or not. Watcher may also have been drawn in by the activity in the Moria, either Gandalf’s passage, or the dwarven activity. This is possible, and even likely, since the lake appears to have still been filling itself shortly before Oin’s death.
It is not clear from the scene itself that it was the Ring which made the Watcher attack Frodo. Frodo was standing closest to the lake, and was thus the easiest target, potentially invalidating the entire theory above. Further, Tolkien notes that Balrog himself was likely awakened by Sauron’s malice, and that the Dwarves merely released it. If the same principle is applied to the Watcher, then the presence of the Ring might have awakened it, or at least alerted it to the Fellowship’s presence, though Boromir’s rock likely sufficed for the latter. But it is known that the Ring has the ability to draw in evil creatures. Orcs at Gladden were emboldened by the Ring, Frodo was singled out by the Watcher and then by the Orc chieftan, and the Witch King notices something when the Ring is close by and sends the word up the Stairs. And attraction to the Ring would explain why the Watcher attacked only Frodo and basically ignored the rest of the Fellowship – including a very tasty pony.
Yet the scene also contains – however tenuous – indication that the Watcher may indeed be cooperating with the Orcs inside. Its act of trapping the Fellowship within Moria speaks of malignant intelligence, not at all a beast driven by the simple hunger.