Top seed Sania had reached the final for the loss of nine games only but in an anti-climactic fashion lost the summit clash to fourth seed Watson, who is 121 placed below the Indian at 252.
Sania thus missed a chance to win her second title in Wrexham. She had triumphed there in 2004.
Sania had also lost the summit clash of the doubles event of the $25,000 tournament in Great Britain.
Sania and her Finnish partner Emma Laine, top seeds, had lost the final 6-2, 3-6, 11-13 to unseeded local pair of Tara Moore and Francesca Stephenson.