Repairing a drywall ceiling with water damage can be done by replacing the damaged section of the drywall with a new section. This is the only way to truly repair the water damaged drywall because drywall by nature, is a porous material and will likely absorb the water, making it a cesspool for mold growth. The mold cannot be sanded down or painted over, so to avoid health complications, replacing the damaged section of drywall is the best remedy even though it may take some extra time.
Cut out the damaged section of the drywall. Make sure that the section being cut out covers at least two ceiling joists even if the actual damaged area is smaller. Cut the section out with a utility knife, being careful not to cut any electrical wires behind the walls. Cut out a square or rectangular shape.
Measure the section needed to fill in the gap. Trace the measurements on a new piece of drywall with the same thickness as the existing drywall ceiling.
Score the marked lines with a utility knife, using a straight edge to guide the score. Score until the drywall is able to get snapped off. Snap the drywall along a straight edge.
Apply adhesive along the ceiling joist where the new drywall will be installed.
Screw the dry new wall into place with drywall screws, allowing the screw heads to break into the surface of the drywall. This will create a slight depression but will later be filled with compound.
Drive in the screws 7 inches apart along the joists.
Spread drywall compound, also known as "mud," with a trowel. Apply several thin coats rather than one thick coat, letting each layer dry. Sand down the final layer with medium coarse sandpaper to smooth out any rough patches. Prime and paint as needed.