Drain peaches and reserve syrup. Heat sugar and butter on medium-low heat until melted. Add water and continue cooking until sauce becomes thick and foamy. Pour into 9 x 13" baking dish and cool 10 minutes.
Place peaches on cooled caramel sauce and cover with slices of bread placed close together. In blender add eggs, milk, and vanilla until mixed. Pour over bread, cover and let stand 30 minutes or refrigerate overnight.
Bake at 350 degrees for 40 minutes. Loosely cover with foil the last 10-15 minutes if browning too fast.
Simmer the peach syrup over low heat and reduce by half.