Watson is best known for scoring Sunderland's stoppage-time winner against Sheffield United in the 2024-25 Championship play-off final, a goal that sent the Black Cats back to the Premier League. He completed a £10m move to Brighton shortly afterwards but has found regular football hard to come by on the south coast, making just 10 appearances, nine of them from the bench, with Kaoru Mitoma established as first choice on the left.
Watson spent the second half of last season on loan at Millwall, featuring 12 times for Alex Neil's side as they lost in the Championship play-off semi-finals to Hull City.
The move to Leicester represents a significant drop in level for the 20-year-old, with the Foxes playing League One football this season following relegation from the Championship under Gary Rowett. New manager Russell Martin has already brought in striker Conor Chaplin and goalkeeper Alex McCarthy on free transfers, along with a loan deal for Manchester City full-back Christian McFarlane, as Leicester look for an immediate return to the second tier.
As many as six Championship clubs, including Hull City and Preston North End, were said to be interested in Watson before Leicester won the race for his signature.
"The size of the club, the ambition for the season and the opportunity to be part of what the team is building made Leicester City a very exciting move for me," Watson told the club's official website.
"I want to work hard, bring energy and excitement to the team and make a real contribution this season."
Watson made his mark early at Brighton, scoring on his debut in a 6-0 Carabao Cup win over Oxford United before going on to make his Premier League bow, but senior minutes proved hard to sustain. He remains highly regarded despite the loan move, having represented England at youth level and been considered one of the more exciting prospects to emerge from the Championship in recent seasons.
The switch to League One gives him a chance to play regularly again, with Leicester hopeful his eye for a big moment can translate into a promotion push back to the Championship at the first attempt.