In 1997, Watson had a spell in caretaker charge of Everton although he would not retire for another four years, in which he moved into coaching and was appointed first team manager at Tranmere Rovers for the 2001–2002 season.
He later spent time coaching in Wigan Athletic's youth academy before taking up a similar role with Newcastle United.
[2] He remained at Goodison Park for 15 years, his first game for them coming on 23 August 1986 when they won 2–0 at home to Nottingham Forest on the opening day of the league season.
[2] Watson was an integral part of the Everton side throughout the 1990s, and following the departure of goalkeeper Neville Southall in 1998 he became the club's oldest and longest serving player.
Watson's first-team opportunities gradually faded, but he made one appearance for Everton during the 2000–01 season, before finally announcing his retirement as a player at the age of 39, and moving into management with Tranmere Rovers.
His key objective at Tranmere was to regain their Division One status which had just been lost, but he failed to achieve that goal and was sacked after just one season at the helm.
[7] On 28 January 2015, Watson was brought into John Carver's backroom team at Newcastle United for the remaining 16 games of the 2014–15 season.