Is baptism by water necessary for salvation?

John 3:5 Jesus answered, Verily, verily, I say unto thee, Except a man be born of water and of the Spirit, he cannot enter into the kingdom of God. If the Kingdom of God is inside you (Luke 17:21), does this mean that one cannot have true inner peace with God unless he is baptized by both water and the Holy Spirit? And does this mean that a person cannot receive salvation into the Kingdom of Heaven without baptism in both water and the Spirit first?