Watson's contract includes a two-way deal for 2015-16 that pays him $575,000 when he's in the NHL and $100,000 when he's in the American Hockey League. Watson will have a one-way, $575,000 contract in 2016-17.
The Predators announced the deal Monday.
The 23-year-old Watson scored 26 goals this past season for the Predators' AHL affiliate in Milwaukee. He tied for second among all AHL skaters with eight game-winning goals and tied for 14th in the league in overall goals.
Watson has scored one goal and played in six NHL games with Nashville. All his NHL appearances came in the 2012-13 season.
The Predators acquired Watson with the 18th overall selection in the 2010 draft.