Australia beat England in one-day cricket
One of the few Australians to emerge with his reputation intact after the Ashes disaster, Watson's brilliant unbeaten 161 enabled the home side to chase down England's imposing total of 294 from 49.4 overs with five balls to spare.
Fittingly, the right-hander hit the winning runs from the first ball of the last over, lofting Ajmal Shahzad over long-on for six to take Australia to 297-4.
He and Brad Haddin laid the foundation for the win with a 110-run partnership, although another scratchy innings by captain Michael Clarke threatened to derail the chase.
Clarke put on 103 with Watson for the second wicket, but again looked sadly out of form and often earned ironic cheers from the crowd when he managed to score as he eked out 36 from 57 balls.
His only four came when he miscued for a single, and two fielding errors led to three overthrows.
However, Watson was not going to let his good work go unrewarded again and held the innings together in the latter overs as the tension rose.
He reached his fifth one-day century from 110 balls and went on to post a career-best innings, facing 150 deliveries in total and hitting 12 fours and four sixes.
The solo effort of Watson, dropped on 44 by Jonathan Trott from the bowling of Chris Tremlett at mid-on, spared Australian blushes after a hapless performance in the field.
Kevin Pietersen led the way for England, who won the toss and elected to bat, with 78 from 75 balls including three sixes.
It was England's highest total in a one-day international against Australia in Australia, and also their highest at the MCG.
Just over a month out from their World Cup defence, the Australians offered up dropped catches, missed stumpings, botched run outs and wickets from no-balls, as well as 14 wides.
The rot set in early for the home side when Steve Smith and Brett Lee somehow got in each other's way at the non-striker's end to mess up an elementary run out to give opener Steve Davies (42) a life before he had scored.
With England captain Andrew Strauss on 17, Lee thought he had the left-hander caught on the boundary, only for a review called by umpire Bruce Oxenford to show it was a clear no-ball.
To rub salt into the wound Strauss, who went on to make 63 from 65 balls, smashed the subsequent free hit for four.
Watson then grassed Davies at short cover when he was on 18 from the bowling of Lee before wicketkeeper Brad Haddin squandered the first of three missed stumpings when Davies was on 24 from the bowling of David Hussey.
The blunders enabled England to get off to a flyer, and the visitors were 90-0 after 12 overs.
Haddin later missed another simple stumping when Strauss was on 48 and facing Xavier Doherty.
The New South Welshman made it a hat-trick of missed stumpings when he cost Hussey for a second time, Pietersen the beneficiary when on 37.
The belligerent Englishman made the Aussies pay immediately, lofting the unlucky Hussey for successive sixes to bring up his half-century and his team's 200.
But in the event Watson's superb knock made up for Australia's bowling woes.