is this sentence grammatically correct?

It makes no sense.

why it's non sense?
then how should I do to make sense?

While hiking, my friends and I saw a waterfall.

The second phrase doesnt connect to the "Me and my friend". So it IS quite a bit nonsensical
Could it be
"My friend and I are in the mid-point of our hike to the waterfall"? That means that you and your friend are at the mid-point either in distance or in the time alloted, for this hike to the waterfall.I think that you are using "between" in a way that its not done in English.

What are you trying to say, exactly?

It's not correct. Actually, it makes no sense.