A toy gun is operated by water under pressure, supplied from a conveniently available source of water under pressure, such as a garden hose connected to a municipal water supply, a household water supply, or a similar source of water under pressure, to launch a projectile, such as a water-filled balloon, along, and preferably through, the barrel of the gun. The projectile is coupled with a firing chamber, preferably by being placed in the firing chamber, adjacent the barrel, and water under pressure is admitted to an actuator for actuating an air compressor which, in turn, creates compressed air that is accumulated in an air chamber and then selectively released to the firing chamber to launch the projectile from the barrel.