A water separation system and method for treating multiphase hydrocarbon production streams is disclosed. The system may be employed to separate gas from the production stream, and then separate the liquid stream into its oil component and water component. A gas/liquid separator may be employed to separate a multiphase hydrocarbon production stream into a gas stream and a liquid stream. A liquid cyclone separator, positioned downstream from the gas/liquid separator, may be employed to divide the liquid stream into an oil dominated portion and a water dominated portion. The system may be used on land or on offshore platforms in locations where it is desirable to separate oil and water from hydrocarbon streams.