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 that he would be more suited to the midfield at Essendon. At the time, his weight was criticised by the media, as he was overweight for an AFL player. Over the next two seasons, he began to develop his craft in the Essendon midfield and became one of the competition's elite midfielders.
Watson had a consistent 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 the 2009 season, 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 Essendon's most important midfielder (coming first in the club's overall clearances) and improved his once-criticised kicking ability to above the standard of an AFL player. Watson was announced as the captain of the Essendon Football Club on December 21, 2009, taking over from retired champion Matthew Lloyd.
Despite Essendon suffering a very disappointing 2010 season, winning only seven games and finishing 14th on the AFL ladder, Watson enjoyed a successful first year as captain. He was a consistent performer in an inconsistent season for the Bombers, polling 16 Brownlow votes from a total of only 43 received by Essendon players, finishing equal-seventh in the 2010 Brownlow Medal count, and having the highest number of votes for a player from a team finishing outside the final eight. Watson was once again awarded the Crichton Medal, earning 291 points, which was 50 points clear of runner-up Heath Hocking.
Watson had a relatively good season in 2011 despite missing six weeks with a hamstring injury, earning 15 Brownlow votes and finishing runner-up in the Crichton Medal, losing out to up-and-coming third-year midfielder David Zaharakis. Watson completed an outstanding 2012 season by winning his first Brownlow Medal with 30 votes. Along with his third Crichton Medal, he also won a handful of other accolades, including the AFLPA Best Captain Award, the Lou Richards Medal and a place in the All-Australian team for the first time. Watson missed three weeks with a broken collarbone in 2013, but had another consistent season, earning 17 Brownlow votes, finishing runner-up in the Crichton Medal to former St Kilda utility Brendon Goddard, and making the All-Australian team for the second time.
Watson had a good start to the 2014 season, but injured his hip flexor in round 12 and consequently missed ten weeks, before playing the final three games of the home-and-away season leading into finals. Since 2006, Watson has finished all but one season in the top two in votes for the Crichton Medal.
On 24 June 2013, Watson admitted on the Fox Footy program On The Couch that he believed he was given the substance AOD-9604 during the 2012 season with the assistance of the Essendon Football Club. The World Anti-Doping Agency (WADA) released a statement clarifying that AOD-9604 fell into the "S0. Non-Approved Substances" category in their List of Prohibited Substances and Methods. The Australian Sports Anti-Doping Authority (ASADA) also stated that the use of AOD-9604 is prohibited for use by athletes in any circumstances. Neither Watson nor the Essendon Football Club were found guilty of taking or administering banned substances. The investigation is ongoing.