Water is a complex liquid that displays a surprising array of unusual properties, the most famous being the density maximum at about 4 °C. The origin of these anomalies is still a matter of debate, and so far a quantitative description of water's phase behaviour starting from the molecular arrangements is still missing. Here we report a study of the microscopic structural features of water as obtained from computer simulations. We identify locally favoured structures having a high degree of translational order in the second shell, and a two-state model is used to describe the behaviour of liquid water over a wide region of the phase diagram. Furthermore, we show that locally favoured structures not only have translational order in the second shell but also contain five-membered rings of hydrogen-bonded molecules. This suggests their mixed character: the former helps crystallization, whereas the latter causes frustration against crystallization.