Following the season, Watson signed as a free agent with the New York Yankees. With the Yankees, he reached the post-season for the first time in his career, losing to the Kansas City Royals in the 1980 American League Championship Series. A year later, Watson reached the World Series for the only time in his career. Watson hit two home runs and batted .318 with seven RBIs, but the Yankees lost to the Los Angeles Dodgers in six games.