I would use a luggage lock and secure around a pole or other stationary object.

Search for cell phone dry bag. Get one that's a bit big for your phone and has a long cord to go around your neck. I pare down in these instances, so I'll have just my cell phone, a credit card/some cash, and whatever key I need in the dry bag. Rental cars kind of suck b/c they make it hard to take just the key. The dry bag I have allows me to use the touch screen on my cell phone and is clear on the back so I can still take pictures. I've gone swimming with it and never had it leak. We're on the water a lot in the summer so it gets regular use.

Get a machine washable backpack (most are) and a proper drysac.

Can you put it in a ziplock bag & bury it under your towel?

Try something like this:

Wildtek Clasp Lock System TPU Waterproof Case with Adjustable Neck Strap for Smartphones, GPS, mp3 Player - White https://www.amazon.com/dp/B00TEG2PZO/ref=cm_sw_r_cp_apa_BzxFybWTXS1ES

Mpow Waterproof Case, Universal Floating Dry Bag Pouch for Outdoor Activities for Devices up to 6.0" [2-PACK] https://www.amazon.com/dp/B01I1430WQ/ref=cm_sw_r_cp_apa_lAxFybEPA3E5T

Not a knapsack though.

Why waterproof?

Eddie Bauer makes a daypack that folds up into itself and is very small:
http://www.eddiebauer.com/product/stowaway-packable-daypack/82302377/_/A-ebSku_0232377100__82302377_catalog10002_en__US?showProducts=&backToCat=Backpacks&previousPage=SCAT&tab=gear&color=045

It's water resistant but not waterproof.

Beach hopping on public beaches throughout the Caribbean, so we need to take turns watching our valuables when we swim/wade. We won't want to leave our wallets, keys, cell phone or camera in the rental car. I'm fine with leaving towels and sunblock unattended on the beach.

Thoughts?