Cayman does not have a lot of waterfront restaurants, so its difficult to recommend some that are kidfriendly + waterfront + very good.
An option is Cracked Conch (haven't been there for a long time so not sure about quality but its def waterfront and pretty kidfriendly). Ritz has some waterfront options. Morgans Harbour.
A good casual option is the restaurant by the skateboard/surf place at Grand Harbour; behind Hurleys supermarket. Its not waterfront or fine dining, but it does offer casual food and a good ambience, and the kids may enjoy the skate/surf place right next door.
Have a good trip!