Bake the meatballs according to package directions and set aside.
Heat the olive oil in a large pot or deep skillet over medium heat.
Add the diced onion and mushrooms and sauté until tender, about 5 minutes.
Stir in the minced garlic and cook until fragrant, about 1 minute.
Pour in the marinara sauce, diced tomatoes, water, Italian seasoning, dried basil, and bay leaves; season with salt and pepper and bring to a boil.
Reduce heat to medium-low, add the cooked meatballs to the sauce, cover, and simmer so flavors meld while you cook the pasta, about 10–15 minutes.
Cook the spaghetti in salted boiling water until al dente according to package directions, then drain.
Toss the drained spaghetti with the sauce and meatballs, remove bay leaves, and serve topped with Parmesan and parsley if desired.
