The screening arising from many-body excitations is a crucial quantity for describing absorption and inelastic X-ray scattering (IXS) of materials. Similarly, the electron screening plays a critical role in state-of-the-art approaches for determining the fundamental band gap. However, ab initio studies of the screening in liquid water have remained limited. Here, we use a combined analysis based on the Bethe-Salpeter equation and time-dependent density functional theory. We first show that absorption spectra at near-edge energies are insufficient to assess the accuracy by which the screening is described. Next, when the energy range under scrutiny is extended, we instead find that the IXS spectra are highly sensitive and allow for the selection of the optimal theoretical scheme. This leads to good agreement with experiment over a large range of transferred energies and momenta, and enables establishing the elusive fundamental band gap of liquid water at 9.3 eV.