Heat sugar in heavy skillet, over low heat, stirring constantly, until sugar melts and turns golden. Use a wooden spoon because a metal spoon will conduct heat.

Pour into a 1-quart casserole. With a wooden spoon, spread caramelized sugar around casserole to coat bottom and sides evenly. Let cool while preparing custard.

Beat eggs. Add condensed milk, 1 cup water and vanilla. Pour into caramel coated casserole. Place casserole in pan containing 1" hot water.

Bake 1 hour, or until knife inserted 1/2" into center comes out clean. Cool completely, about 2 hours.

Run spatula around edge of flan and turn out on serving dish. Pour caramel over flan. Chill in refrigerator before serving.