Compared to the last two stages, this one is relatively simple. Pretty much any weapon will make quick use of the Octopus Batteries, so blast your way through.
As you begin going down the main shaft that comprises the level, water will flood the tunnel, forcing you forward at a rapid pace. Missiles and Pengs will be flying at you, and since the former cause deadly explosions when hit, you're better off attempting to jump or avoid them.
At the end of the corridor, you'll meet the Bubble Robots - the Stage Three Boss. It's tempting to throw those rocks at them, but not so fast! Each bot is easily destroyed with a few arm cannon shots, and each one is faster than the last. And there are only four bricks. The solution? Kill the first three or four with your arm cannon. Use the bricks only for the latter few, since they get super fast. This is an easy victory.