It's not a deadly banana. Just a fruit rich in potassium. In Snake's hands, however, even a banana can be a powerful tool.
While the banana is not the kind that shoots bullets, it comes with its own accessory (a jacket), and its shape means it's easily mistaken by intimidated soldiers for a gun. It's also much healthier than the other things Snake brings with him on missions. Unless he tries to smoke it.
If you add the tasty snack to your loadout, it will replace your water pistol.