Why was Peter Fishing Naked (John 21:7)?

The Greek word used in the passage is gymnos, which means "nude." In that time and place, however, fishermen often worked nude since they usually only owned one garment. This would have been a linen tunic, often translated "coat." Since they did not want to spoil their only garment with fish guts, etc., they would often lay it aside where it wouldn't get spoiled, putting it on again when they were finished with the dirty work.

Another thing to keep in mind is that simple nudity in a non-sexual context was not usually seen as shocking or unusual, even when there were women around. The prophets in Israel often stripped off their clothing to prophesy, and when King Saul stripped naked and prophesied the people marveled...not at his nudity but that he was acting like the prophets. Micah mentioned stripping naked and howling in his writings, and in Isaiah chapter 20, Isaiah records that God told him to take off his clothes and walk around Israel completely naked for three years. Some have tried to dismiss this, stating that he took off only an outer garment, but it specifically says in that passage that he "loosed the sackcloth off his loins, which means he was taking off his undergarments as well. In the passage, Isaiah is doing this as a sign that the Egyptians and Ethiopians are going to be led away naked as slaves:

"So shall the king of Assyria lead away the Egyptians prisoners, and the Ethiopians captives, young and old, naked and barefoot, even with their buttocks uncovered, to the shame of Egypt."

If Isaiah was only taking off his jacket, so to speak, this passage would not make any sense. The problem I believe many Christians today have with passages like this that talk about nudity in a way that does not condemn it is that it makes people confused. In modern Christianity we have been infused with the Victorian idea that nudity is wrong, and this has influences our mores. The reality is that the Bible never states that nudity is wrong, though if used for the wrong purposes it can be. Jesus said that it isn't what enters into someone that results in sin, but what comes out of the heart. In the same passage he refers to the "lust of the eyes." This passage would seem to imply that simply seeing a naked person or being naked in a public place is not wrong, but lusting after a naked person is wrong. In the Old Testament, Bathsheba was not condemned for bathing on her rooftop, which was a very public place in the society of the time and place. It was the sin that resulted from David's lusting after her that was condemned.

The Scripture says

Therefore that disciple whom Jesus loved saith unto Peter, It is the Lord. Now when Simon Peter heard that it was the Lord, he girt his fisher's coat unto him, (for he was naked,) and did cast himself into the sea.

We should stop trying to make things more holier than they are. It is what it is. He was naked. Just as Mark 14:51 says this young boy was also naked that followed Jesus.

young man was following Him, wearing nothing but a linen sheet over his naked body; and they seized him. But he pulled free of the linen sheet and escaped naked.

Not sure, ancient art work displays many middle eastern fishermen naked as they ply their trade. This would make sense with the knowledge of the scarcity of clothes, thus making many individuals to only have one outfit. As fishing is a stinky and arduous task, it also makes sense to remove valuables (clothes) while not engaging in such activities. So why would Peter grab his clothes prior to jumping in the water, There is no guarantee the boat would make it back (although likely), nor is there a promise he and Jesus wouldn't immediately depart, leaving the rest of the disciples at the beach/dock.

The word describing the garment Peter put on is ἐπενδύτης, which is a hapax legomenon in the New Testament and rarely used in ancient Greek literature. Etymologically the word derives from a verb that means "to put on over". It is a garment (perhaps specific to the profession of fishing) worn over something else. So it might be better to think of Peter fishing in his underwear.

It is odd, however that Peter would add clothing before jumping into the water to swim 100 yards or so. (Peter's personality was such that it does not seem odd that he was so eager to get to Jesus that he wouldn't wait for the boat to get there.) W. Hall Harris III writes:

R. Brown’s suggestion seems much more probable here: the verb used, διαζώννυμι, does not necessarily mean putting clothing on, but rather tying the clothing around oneself (the same verb is used in 13:4-5 of Jesus tying the towel around himself). The statement that Peter was naked (ἦν γὰρ γυμνός) could just as well mean that he was naked underneath the outer garment (τὸν ἐπενδύτην), and thus could not take it off before jumping into the water. But he did pause to tuck it up and tie it with the girdle before jumping in, to allow himself more freedom of movement. Thus the clause that states Peter was naked is explanatory (note the use of γάρ), explaining why Peter girded up his outer garment (τὸν ἐπενδύτην) rather than taking it off: he had nothing on underneath.

In any case, it seems Peter was properly attired for his labor, but needed to prepare himself before jumping into the water. Either he needed to secure his ἐπενδύτην so that he could swim or he felt he needed to put on the garment in order to meet his Lord.