Born in Sydney, Watt completed a Graduate Diploma of Film and Television (Animation) at the Swinburne Film and Television School (now VCA), Melbourne in 1990. Her student film "Catch of the Day" was to reflect the style of future work. In 1995, she directed a short film, Small Treasures, which won Best Short Film at the Venice Film Festival. In 2000, she made a program for the SBS series Swim Between the Flags called "Local Dive". It was made concurrently with another project that she was directing called "The Way of the Birds" based on the 1996 book of the same name by author Meme McDonald. She received the Australian Film Institute's award for Best Director for her 2005 film Look Both Ways.
Watt returned to the VCA School of Film and Television to teach animation and was to assist in the development of many animators including Academy Award winner Adam Eliot in 1996. Watt was instrumental in the development of scripts for all of her students, but left the School to further develop her own projects, returning on occasion as a script and final production assessor.