Drain peaches and reserve syrup. In a saucepan, heat sugar and butter on medium low heat until butter is melted. Add water and continue cooking until sauce becomes thick and foamy.
Place peaches on top of cooled sauce and cover slices of bread placed close together.
Blend together eggs, milk and vanilla until well mixed. Pour over bread, cover pan and refrigerate overnight. To bake, place in a 350 degree oven for 40 minutes Loosely cover with foil for the last 10 to 15 minutes if mixture is browning too quickly. Serve with warmed reserved peach syrup. Serves 12 to 14.