The phenomenon that causes an optical illusion of a distorted reflection in water is known as refraction. When light passes from air into water, it slows down, bending the light rays and creating a distorted image of objects beneath the surface. This bending can lead to visual discrepancies, such as objects appearing closer, larger, or misaligned. Refraction is a critical concept in the study of optics and helps explain various visual phenomena, including the behavior of lenses in glasses and cameras.