The importance of dispersion forces in water clusters is examined using the effective fragment potential (EFP) method. Since the original EFP1 water potential does not include dispersion, a dispersion correction to the EFP1 potential (EFP1-D) was derived and implemented. The addition of dispersion to the EFP1 potential yields improved geometries for water clusters that contain 2-6 molecules. The importance of the odd E-7 contribution to the dispersion energy is investigated. The E-7 dispersion term is repulsive for all of the water clusters studied here and can have a magnitude that is as large as half of the E-6 value. The E-7 term therefore contributes to larger intermolecular distances for the optimized geometries. Inclusion of many-body effects and/or higher order terms may be necessary to further improve dispersion energies and optimized geometries.