The first Watt engines were atmospheric pressure engines, like the Newcomen engine but with the condensation taking place separate from the cylinder. Driving the engines using both low pressure steam and a partial vacuum raised the possibility of reciprocating engine development. An arrangement of valves could alternately admit low pressure steam to the cylinder and then connect with the condenser. Consequently, the direction of the power stroke might be reversed, making it easier to obtain rotary motion. Additional benefits of the double acting engine were increased efficiency, higher speed (greater power) and more regular motion.
Before the development of the double acting piston, the linkage to the beam and the piston rod had been by means of a chain, which meant that power could only be applied in one direction, by pulling. This was effective in engines that were used for pumping water, but the double action of the piston meant that it could push as well as pull. This was not possible as long as the beam and the rod were connected by a chain. Furthermore, it was not possible to connect the piston rod of the sealed cylinder directly to the beam, because while the rod moved vertically in a straight line, the beam was pivoted at its centre, with each side inscribing an arc. To bridge the conflicting actions of the beam and the piston, Watt developed his parallel motion. This device used a four bar linkage coupled with a pantograph to produce the required straight line motion much more cheaply than if he had used a slider type of linkage.  He was very proud of his solution.
Having the beam connected to the piston shaft by a means that applied force alternately in both directions also meant that it was possible to use the motion of the beam to turn a wheel. The simplest solution to transforming the action of the beam into a rotating motion was to connect the beam to a wheel by a crank, but because another party had patent rights on the use of the crank, Watt was obliged to come up with another solution. He adopted the epicyclic sun and planet gear system suggested by an employee William Murdoch, only later reverting, once the patent rights had expired, to the more familiar crank seen on most engines today. The main wheel attached to the crank was large and heavy, serving as a flywheel which, once set in motion, by its momentum maintained a constant power and smoothed the action of the alternating strokes. To its rotating central shaft, belts and gears could be attached to drive a great variety of machinery.
Because factory machinery needed to operate at a constant speed, Watt linked a steam regulator valve to a centrifugal governor which he adapted from those used to automatically control the speed of windmills.  The centrifugal was not a true speed controller because it could not hold a set speed in response to a change in load.
These improvements allowed the steam engine to replace the water wheel and horses as the main sources of power for British industry, thereby freeing it from geographical constraints and becoming one of the main drivers in the Industrial Revolution.
Watt was also concerned with fundamental research on the functioning of the steam engine. His most notable measuring device, still in use today, is the Watt indicator incorporating a manometer to measure steam pressure within the cylinder according to the position of the piston, enabling a diagram to be produced representing the pressure of the steam as a function of its volume throughout the cycle.