Watson and Irwin shared first place in Dearborn, Mich., through 36 holes; however both men struggled mightily in the third round and were overtaken for the top spot.
Ed Dougherty shot a 4-under-par 68 to take a one-shot lead at 11-under-par 205 over Allen Doyle, who shot 70.
'Normally on this tour, you have to go really low to win. But this is a week where par is a good score again,' Dougherty said. 'You can't attack the course. You've got to keept the ball in the middle of the fairway and the middle of the green.'
This years Tradition champion Doug Tewell (67) is tied with Watson (72) for third place at 9-under. Jay Sigel (70) is in fifth place at 8-under. Defending champion Raymond Floyd (69) is four back with Gil Morgan (69) at 7-under.
Irwin (75) is tied with U.S. Senior Open champion Bruce Fleisher (72), Tom Kite (71) and Mike McCullough (68) at 6-under, five off the lead.
Last year, Floyd overcame a six-stroke Sunday deficit to win his second Players Championship.
Starting the day at 9-under-par, Watson double bogeyed the 2nd, 5th and 6th holes. He did make a couple of birdies on the front nine to shoot a 4-over-par 40.
Irwin was steadier, making two birdies and two bogeys to remain at 9-under.
The back nine proved to be a bit different.
Watson birdied the 13th and 16th holes, and then eagled the par-5 17th to get back to even par for the day and 9-under for the tournament.
'I was on the mat. I had to pick up the pieces,' said this year's Senior PGA champion. 'Obviously, I'm grateful to be back in contention. It has put me in a good frame of mind. I'm looking forward to Sunday now.'
On the other hand, Irwin started out fine with a birdie on the 10th, but bogeyed the par-5 13th, double bogeyed the par-3 15th and double bogeyed the par-4 16th. Were if not for a chip-in birdie on the par-4 18th, Irwin would have matched Watsons front-nine score of 40.
'That was a disaster,' Irwin said. 'I've been saying all along that I wasn't playing well. Now I need to go back to the drawing board. I just fooled everybody by making every putt yesterday.'
Dougherty came close to winning his first Senior major in the 1999 U.S. Senior Open, where he finished runner-up to Dave Eichelberger.
Saturday, he carded five birdies and one bogey. Dougherty is seeking his second career Senior victory. He claimed his maiden title in the 2000 Coldwell Banker Burnet Classic.
Full-field scores from the Ford Senior Players Championship