Watson's expertly-taken first-half effort decided the season's first Steel City clash in front of a crowd of 30,441 at Hillsborough, which saw both sides have a man sent off and Blades goalkeeper Paddy Kenny save a penalty.
Watson side-footed an exquisite volley over Kenny in the 35th minute, seven minutes after United central defender Matt Kilgallon had been shown a straight red card by referee Mike Dean after leaving Owls midfielder Sean McAllister in a heap.
Deon Burton saw his penalty well saved by Kenny 10 minutes after the break after Gary Speed had tripped Tommy Spurr in the area.
Owls winger Jermaine Johnson was then shown a red card for lashing out on the touchline after being replaced by Akpo Sodje.
1989/98 S.C.Watson 216/42 14
Steve became the youngest ever player to play for Newcastle in November 1990 when he played against Wolves as substitute for Liam O'Brien. Popular player who was shocked when Ruud Gullit sold him to Aston Villa in 1998. Was famous for a while for his Mexican-style throw-in that he used only twice (v Boro and Hull). Great utility player who could play anywhere. Scored a cracking goal at Anfield in the League Cup against Liverpool.