Yes, that's the most plausible explanation for the myth - and there will likely have been other such devastating but 'local' flood events in prehistory.
Some scientists think the earth could have once been nearly covered with water (based on computer simulation) ... but about 2.5 billion years ago, when there was nothing more complex than bacteria and algae.
If you really believe that 'God' flooded the earth, then you don't actually need a 'how', do you? He could have just magicked up extra water, drowned nearly everything, then afterwards somehow sorted out the koalas etc etc etc. The 'why' of the myth and the what it says about Who is more interesting than any vaguely scientific 'how', don't you think?