The 23-year-old world number 55 lost 6-2 3-6 6-4 to Kristyna Pliskova of the Czech Republic, ranked 88.
After the first two sets were shared, Watson lost her first two service games in the decider to go 3-0 down.
She battled back but missed three break-point chances to make it 3-3 and Pliskova held her nerve thereafter to secure the victory.
Never want to miss the latest tennis news? You can now add this sport and all the other sports and teams you follow to your personalised My Sport home.
British number two Heather Watson was beaten in the opening round of the Katowice Open in Poland.