When a high-power laser beam is irradiated on the surface of material, it is well known that a cavity, called a keyhole induced by the pressure action of the vapor plume, is generated in the molten material. This paper describes the interaction between a pulsed CO$_2$ laser beam and water. The laser-beam is used to generate and maintain a conical depression in the water surface similar to the keyhole created during laser penetration welding. Experimental results show that the depth of laser-beam penetration is limited by hydrodynamic instability. The instability of the surface cavity can be understood by the capillary instability of a hollow jet. Theoretical computation of the steady keyhole shape has been performed. modifying the model suggested by Andrews et al. (1976). The model predicts the qualitative behavior of the keyhole but significantly underestimates the average diameter.