Heat water and sugar over medium-low heat. When sugar dissolves, turn heat to low and add in the grapefruit. Simmer for 5 minutes.
Next, turn off heat and allow to cool for one hour. Strain mixture, and your simple syrup is ready to go.
For the cocktail, mix tequila, Cointreau, simple syrup, sparkling water, and bitters. Stir well and serve over ice.
Garnish with grapefruit peel, if desired.