A two-dimensional, time-dependent bioheat model is applied to evaluate changes in temperature and water content in tissues subjected to laser irradiation. Our approach takes account of liquid-to-vapor phase changes and a simple diffusive flow of water within the biotissue. An energy balance equation considers blood perfusion, metabolic heat generation, laser absorption, and water evaporation. The model also accounts for the water dependence of tissue properties (both thermal and optical), and variations in blood perfusion rates based on local tissue injury. Our calculations show that water diffusion would reduce the local temperature increases and hot spots in comparison to simple models that ignore the role of water in the overall thermal and mass transport. Also, the reduced suppression of perfusion rates due to tissue heating and damage with water diffusion affect the necrotic depth. Two-dimensional results for the dynamic temperature, water content, and damage distributions will be presented for skin simulations. It is argued that reduction in temperature gradients due to water diffusion would mitigate local refractive index variations, and hence influence the phenomenon of thermal lensing. Finally, simple quantitative evaluations of pressure increases within the tissue due to laser absorption are presented.