Terraforming
Add rocks and boulders of various shapes and sizes to create an outcropping from which your waterfall will flow. Also use the terrain editor to create a depression beneath the rocks where the waterfall can feed a pool.
Adding a Waterpump
Add a water pump from the object browser. The water pump is under Structures. For a thin waterfall, a single water pump will work. The wider you want the waterfall, the more water pumps you should add. Add the water pumps to the rocks you created. Orient the water pumps so they spay water down. You can hide the water pumps under additional rocks.
Add Explosives
Add explosives around the water pumps. You must destroy the water pumps to make the water flow. Find explosives at the Root level of the Objects Browser.
Start the Water
Enter game mode. Shoot the explosives with your weapon. The water will flow when the pumps are destroyed. If you have not added enough explosives to destroy the water pumps, return to edit mode and add more explosives.