He was elected as U.S. Representative from Indiana's 4th congressional district in 1894 to the 54th Congress (1895–1897), defeating the incumbent Democratic William S. Holman, in part by speaking German, the language of many of his constituents.

Cannon ensured his selection as the Republican whip, trusted him with party strategy in the House of Representatives, and placed him on the powerful Ways and Means Committee.

As one writer observed, Watson "would work himself up to an astonishing pitch, tear off his collar and necktie, then throw aside his coat and vest, until, clad in trousers, shirt, and suspenders, he could really let himself go."

Opposed by organized labor, he lost the election to Thomas R. Marshall, the future vice president under Woodrow Wilson.

He resumed a private law practice in Rushville, though he continued to participate in Washington politics, supporting Cannon after House Democrats and Republican "insurgents" attempted to oust the speaker in 1909.

The following year, Watson wrote Cannon's famous speech defending the leadership's authority, party government, and the rights of the majority.

The House adopted a resolution that prevented Cannon and subsequent speakers from serving on or appointing members to the all-important Rules Committee.

In fact, he became known as an Indiana boss, and state politicians sought his endorsement as a necessary precursor to winning elections or appointments to higher office.

Following the election, however, Watson remained a fixture of the Washington scene, practicing law and trading stories with his former colleagues in the Republican cloakroom.

Wendell Willkie, a Republican convert and fellow Hoosier, could attest that Watson's support, or lack thereof, meant everything in the state.