Sometimes we feel sorry for Pharaoh and the Egyptians for all that is about to befall them in the ten plagues. It is important to remember that they had ample opportunities to repent, obey the Lord, and do the right thing in their treatment of the Hebrews. God offered them instructions and signs before embarking on the path of the punishing plagues. But how else was God supposed to accomplish His will over the hardened hearts of Pharaoh and his officials? To break their will He needed to bring them to their knees.
The first plague takes place after Pharaoh rejected the sign of Aaron's staff turned into a snake. The conjurers of Egypt were able to replicate this feat by turning their own staffs into snakes as well (vs. 12). Tellingly, however, their snakes were swallowed up by Aaron's! Something else would have to be done. A much more dramatic and punishing message would need to be sent.
The Nile was central to Egyptian religion, culture, and way of life. The whole nation revolved around the cycle of the Nile and its life-giving power. But the Nile had also been abused by Pharaoh by being the means of death for the children of the Israelites, God's people. While the Nile had been metaphorically turned to blood by the slaughter of the innocents, Moses and Aaron made it literally reflect that fact by turning its waters to actual blood.
This assault upon the heart of Egypt must have rattled Pharaoh and the people, but it was not enough to turn them from their ways. Their magicians imitated this miracle, too, and so Pharaoh continued to harden his heart (vs. 22).