The 34-year-old point guard agrees to a one-year deal with the Portland Trailblazers, worth $1.4 million.
Watson played the last three seasons with Utah, appearing in 178 games, starting 19. Watson averaged 3.1 points and 3.9 assists per game with the Jazz.
Watson missed the start of last season due to major knee surgery, then played through much of the season with a non-displaced fracture in his right leg.
Known as a mature, intelligent leader, Watson could have been brought back to the Jazz to mentor first round draft pick Trey Burke. Now, that job could fall to Jamaal Tinsley. The Jazz now have just three unrestricted free agents left in Tinsely, Mo Williams and Randy Foye.
Al Jefferson agreed to a deal with Charlotte on Thursday, while Paul Millsap and DeMarre Caroll agreed to deals with Atlanta Friday.
Just after the signing was announced, Watson tweeted, "Thank you to coach Sloan, KOC, Dennis Lindsey, Corbin & the Miller family! As well as the amazing fans! Thank you, thank you, thank you!"