In large skillet over medium-high heat, cook meat, stirring, until lightly browned. Add spaghetti sauce, mushrooms and water. Bring to boil; reduce heat and simmer 5 minutes. In small bowl combine ricotta, egg, salt and pepper. Spoon 1 1/2 cups of sauce into 13x9x2 inch baking dish; top with half the uncooked noodles, all of the ricotta mixture, 1 cup mozzarela, 1/2 cup parmesan cheese, 1 1/2 cups sauce and remaining noodles. Top with remaining sauce, mozzarela and parmesan. Cover.
Bake in 350 degree oven 45 minutes. Remove cover; bake 15 minutes longer. Let stand 15 minutes before serving.