Watson, who made 21 appearances for Palace in the top flight in their 2004-05 relegation season, is confident he has made the right choice.
"It's great to be back in the Premier League," he said.
"Steve Bruce is the big pull here, and it's a great time to be joining the club and a team who are really flying.
"I want to thank everyone at Palace, and all the supporters, because they have been great to me.
"But this is a terrific opportunity for me to play in the top flight again, and I just felt the time was right for a move for me."