The Port hero is back at the helm after replacing Kevin Davies, it was this afternoon confirmed.
He returns for a third time having taken the club to Conference North success in 2005 and 2010.
Watson said: “It is great to be back, and I am looking forward to the challenge. We have the nucleus of a squad capable of winning promotion and we have already identified targets to strengthen.
“We have the budget available to put together a squad which can play an attractive, attacking style of football and I can’t wait to get started working with Jon McCarthy on that.
“My desire to manage again has stemmed from watching Accrington Stanley and, my friend, John Coleman, win League Two this season. I was at the game when they clinched the title and the ‘butterflies’ returned. I want that experience again myself.
“It’s important to me that the club now has the ambition to match my own, and I believe that I can now achieve all of my managerial dreams here at Southport, something I’ve not been able to achieve previously.”