Watson was selected at pick 40 under the father-son rule in the 2002AFL Draft. He was initially coached as a key forward by Kevin Sheedy, who also coached his father Tim. His poor kicking (by AFL standards) drew criticism, and it was determined he would be more suited to the midfield at Essendon. At that time his weight was criticized by the media, as he was overweight for an AFL player.
Watson had a career-best season in 2009, polling 10 Brownlow Medal votes and winning the Essendon Best and Fairest award, the W.S. Crichton Medal. Watson polled 335 votes in 15 of the 21 games he played in season 2009, with only one game missed due to an ankle injury. Watson was 46 votes ahead of runner-up Dustin Fletcher who polled 289 votes.
By the end of the 2009 season, Watson had gathered a reputation as one of Essendon's most important midfielders, coming first in the clubs overall clearances and improved his much criticised kicking ability to the average for an AFL player.
Watson was announced as the captain of the Essendon Football Club on the 21st of December 2009, taking over from retired champion Matthew Lloyd.
Despite the Essendon Football Club suffering a very disappointing 2010 AFL season, winning only seven games and finishing fourteenth on the AFL Ladder, Watson enjoyed a successful first year as captain. He was a consistent performer for the Bombers in an inconsistent season and, at the 2010 Brownlow Medal on 20 September 2010, polled 16 votes from a total of only 43 received by Essendon players. He finished equal seventh in the 2010 Brownlow Medal count, receiving the highest number of votes for a player from a team finishing outside the final eight. On 1 Oct 2010 Watson was once again awarded the W.S. Crichton Medal earning 291 points, which was 50 points clear of runner-up Heath Hocking.
Watson completed an outstanding 2012 season by winning his first Brownlow Medal with 30 votes. He also won his third Essendon best and fairest award, and was named in the AFL's All Australian team for the first time.
On 24 June 2013, Watson admitted on the TV show On The Couch that he believes he was given the substance AOD-9604 during the 2012 season with the assistance of his club. The World Anti-Doping Agency alleges that AOD-9604 is a prohibited substance under the World Anti-Doping Agency list of prohibited substances and the Australian Sports Anti-Doping Authority has stated that the use of AOD-9604 is prohibited for use by athletes in any circumstances, however, neither of these statements are authoritative as the relevant provision of the WADA List of Prohibited Substances requires an analysis of the Australian Therapeutic Goods Act in order to determine the legal status of the substance.