© Getty Images
The 22-year-old suffered a double break in the opening set, despite securing a break of her own, and Kerber was too strong for the Brit.
After earning another break point, the 26-year-old eased her way to a one-set lead, but Watson fought back in the second as both players were broken twice.
Watson managed to save four break points before pushing on to take Kerber's serve and draw level on sets.
However, the Brit's dominance was short-lived as she was broken twice in the first three games of the deciding set.
Despite getting a break back, it wasn't enough for Watson to challenge as she was forced out of the Grand Slam in her second match.