We present the results of simulations using water-water and water-ion models that include explicit nonadditive polarization energies. The water-water potential has been adjusted to fit the experimental water density and potential energy. The resulting potential is used in a simulation of liquid water. In addition to the density and potential energy, the model also fits the experimental radial-distribution functions and the diffusion coefficient well. Water-ion parameters are derived similarly and include, in addition to polarization nonadditivity, three-body exchange repulsion. The model is then used to compute the energy of ion-water clusters. The agreement with experimental energies of cluster formation is very good. © 1990, American Chemical Society. All rights reserved.