Yes we can see rainbow on a sunny day If water droplets are present in the air, and the sun is shining through them, and the observer is in the right position with respect to them, i.e., the water droplets are between the observer and the sun, then a rainbow may be observed. The water droplets may be at any height, e.g., high in the air as raindrops, at ground level as mist generated by a waterfall or even by lawn sprinklers.