Watson scored 70 off 47 balls to lead Aussies chase the target of 147 set by South Africa in the match played at the R Premadasa Stadium in Colombo on Sunday.
Watson hammered eight fours and two sixes during his half-century knock. He also added 99-run stand in for the second wicket with Mike Hussey to compensate the loss of David Warner, who was bowled by Morne Morkel when Australia were 10.
Earlier, Robin Peterson and Farhaan Behardien added unbeaten 60-run stand to help South Africa make a reasonable score after their top order collapsed.
Peterson led Proteas fightback with his hitting in death overs, smacking six fours in his unbeaten 32 off 19 balls to take South Africa 146/5 in 20 overs.
Shane Watson, who was once again declared player of the match, also took two wickets off 29 runs. Xavier Doherty also played his role to ruin the top order of South Africa taking three wickets off 20 runs.
Earlier, Australian skipper George Bailey won the toss and elected to field against South Africa.