Watson, 25, was trailing Japan's Naomi Osaka 6-1 4-1 when the world number 71 signalled she was unable to continue.
Meanwhile, British number two Kyle Edmund also lost his first-round match to world number 33 David Ferrer in Montreal.
The 22-year-old went down 6-7 6-4 6-3 to his Spanish opponent.
Britain's world number one Andy Murray withdrew from the Rogers Cup as he has yet to recover from the hip injury which hampered his Wimbledon campaign.
Murray remains a doubt for the US Open, which begins on 28 August.
French Open champion Jelena Ostapenko, 20, was also in action in the women's draw in Toronto but suffered a defeat by 31-year-old qualifier Varvara Lepchenko.
Latvia's Ostapenko took the first set and was 3-0 up in the second but lost 1-6 7-6 (7-2) 7-6 (7-5) to the American.
Seven-time Grand Slam champion Venus Williams, 37, is the oldest player in the draw and was given a tough test before overcoming qualifier Irina-Camelia Begu 6-1 3-6 6-3.
Two-time Wimbledon winner Petra Kvitova beat Carla Suarez Navarro 6-1 7-6 (7-5) to progress, and, despite a comfortable first set, had to recover from 4-1 down in the second before securing victory.
In the men's draw, Australian Nick Kyrgios powered to a 6-1 6-2 first-round win over Viktor Troicki as he showed no signs of the hip injury that forced him to retire in the first rounds at Queen's Club and Wimbledon.
"I'm feeling it all the time," said 22-year-old Kyrgios, who needed seven match points to finish off the match.
"It's not something that is just going to heal. I can compete so that's the most I can do at the moment."
Argentina's Juan Martin del Potro also made it through as he beat American John Isner, who served 24 aces, 7-5 7-5.
Britain's Heather Watson was forced to retire with a shoulder injury in the first round of the Rogers Cup in Toronto, Canada.