Chasing a modest 145-run target, the hosts romped home with 2.1 overs to spare as Watson scored a 53-ball 98, laced with 13 fours and four sixes.
Hyderabad had overcome a disastrous start to post 144 for nine after Caribbean batsman Darren Sammy played a heroic 60-run knock and shared a crucial 58-run stand with Amit Mishra (21) for the seventh wicket.
Rajasthan left-arm paceman James Faulkner (5/20) stood out with a five-for after Hyderabad elected to bat.
The hosts lost Ajinkya Rahane (1) and were cautious till the half-way mark as they reached 53 for one in 10 overs.
However, Watson opened his arms to good effects after that and sent Hyderabad bowlers to a leather hunt.
It all started in the 11th over when both Watson and skipper Rahul Dravid hit spinner Amit Mishra for a six each, collecting 17 runs from the 11th over.
Dravid however, could not last long as he holed out to deep mid-wicket while attempting to send a Thisra Perera delivery out of the park. Dravid scored a 35-ball 36.
It was a Watson show after that. Rajasthan needed 64 runs after Dravid's dismissal and Watson scored 56 of them.
The burly Australian hammered paceman Ishant Sharma for three fours and then closed the 15th over with a massive six over long-on, collecting 20 runs for his side.
The onslaught continued and the next victim of Watson's fury was Perera, who was hit for three boundaries, including a six. These two overs turned the tide in the favour of the hosts as Hyderabad seemed to have made a fight out of it.