Watson fired a bogey-free 5-under-par 67 to hold off Gil Morgan by two shots to claim his first Senior title of the year, and second Senior Tour Championship.
Watson, who had five runner-up finishes in 2002, used the final event of the year to showcase the talents he's possessed through the years.
'I started off making a couple of putts today that I shouldn't have made,' said Watson. 'And I said well, maybe today is going to be my day, and it sure as heck was.'
Tom Watson talks about his win.
Playing the final 51 holes without a bogey, the putting-challenged Watson relied on a smooth stroke on the greens to claim the victory.
Ranked second in both total putts and putts per greens in regulation, Watson followed up a costly bogey by Morgan on the 16th with a birdie on 17 to push his lead to three as they came to the closing hole.
Though only having three bogeys the entire tournament, Morgan's birdie on the 18th was meaningless as Watson's par was enough for the win.
'I couldn't cash in on my opportunities as well as I did earlier in the round,' said Morgan. 'And then I made some mistakes on top of that. The bogey at 16 really hurt, at that point in time, with not too many holes left.'
Bob Gilder, who started the day four strokes down, closed with five birdies on his last 10 holes to finish alone in third, five behind Watson.
Hale Irwin, who led coming into the weekend, had three birdies and a pair of bogeys to end a disappointing weekend in fourth place, at 7-under-par 281. His 73-71 finish kept him from winning his Senior-best fifth event of the year.
Tom Purtzer, Larry Nelson, Morris Hatalsky and Fuzzy Zoeller were in a group that closed the year at at 6-under-par 282, eight shots removed from the winner.
With the win and the $435,000 first-place check, Watson moves into the top-10 on the Senior Tour money list.
Irwin's fourth-place showing assured him of the 2002 money title. He also became the first player in tour history to surpass the $3 million mark in a single season.
'The push over this last several months has been to maintain the No. 1 position, not only in the money standings, but also the Schwab Cup,' said Irwin. 'I should say additionally that the $3,000,000 mark was a goal too. I accomplished all those goals. I'm very proud of that, but it's time to jump off and get a little rest and relaxation.'
John Bland, Tom Purtzer, Larry Nelson, Morris Hatalsky finished at 6-under par, eight back of Watson.
Final scores from the Senior Tour Championship