I have built a diorama of an emerging sub and I did 2 waterline dioramas of a ship. That sure is doable in paper. Three different techniques:
- For the submarine I used just half the ship, and made the base out of gypsum and finished it with a layer of clear acrylic paste. It dries rock hard and stays transparent. It gives the surface more depth than you can imagine beforehand. This was my first try wver with imitating water and although I liked the result at first, this was one of the first models that I dumped when I started to suffer from lack of shelf space. So it doesn't exist any more.
- The waterline ship was made by taking a picture frame and lowering the base so that there was at least 5 mm of space up to the rim. I filled it with a layer silicone rubber, just to about 2mm from the rim. It smelled a bit line vinegar. When it had cured enough but still was a little wet, I put the boat in the silicone paste and let it dry there with the paste. After that, the top layer was made from clear acrylic paste. Wake, waves and all. It still looks good.
- The last technique I used was for the Thunderchild diorama. Just a picture frame, the glass front plate was the sea's surface. The top side was given a layer of clear acrylic paste and the models were put into the wet stuff and dried along with it. I painted the base plate below the glass in different shades of blue and lowered it with a spacer between the glass and the base to give it a bit more depth.
I have never tried to do a fully submerged scene and I fear that such a diorama will have some problems with wet stuff and paper. But perhaps if you first coat the model with some waterproof stuff...