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