The 36-year-old Australian hit eight sixes and 11 fours in a stunning 57 ball innings as Chennai took just 18.3 overs to overcome Hyderabad’s 178-6 off 20 overs.
Chennai finished on 181-2 to crush their opponents by eight wickets. They have now equalled the Mumbai Indians in winning the world’s wealthiest cricket tournament for the third time since it started in 2008.
Ambati Rayudu was also unbeaten at the end on 16 in Mumbai’s Wankhede Stadium which was packed with more than 33,000 people.
Rayudu hit a four to complete victory but he led tributes to Watson.
“His experience saw us through. He is a world class player and when he is there anything can happen,” Rayudu said.
Chennai, IPL winners in 2010 and 2011, were banned for two seasons in 2015 along with Rajasthan Royals after team officials were found guilty of involvement in illegal gambling.
Super Kings captain M. S. Dhoni won the toss and put Hyderabad into bat. Their New Zealand captain Kane Williamson hit a top-score 47 as Sunrisers posted 178-6.
The 27-year-old Williamson, a last minute replacement for scandal-tainted David Warner as captain, has been an impressive leader, amassing 735 runs including eight half centuries in 17 matches.
He was supported by Yusuf Pathan who hit an unbeaten 45 off 25 balls, including four fours and two sixes. Carlos Brathwaite also hit an 11-ball 21 to help Hyderabad add 52 runs in the last five overs.
But after preventing Watson from scoring for his first 10 balls and taking South African opener Faf du Plessis for 10 in the third over, the Hyderabad bowlers were put to the sword.
Watson and Suresh Raina put on a swashbuckling 117-run second-wicket stand with Raina hitting 32.
Afghanistan teen sensation Rashid Khan returned figures of 0-24 for Hyderabad but Watson hit the other bowlers to every corner of the stadium.
The big-hitting Aussie allrounder plundered 27 runs off one Sandeep Sharma over.
Watson took a single off Khan to bring up his hundred in 51 balls and then acknowledged a standing ovation from the Chennai dugout and the crowd with his team already in sight of their IPL triumph.
The winners of the final were guaranteed a minimum $4 million in prize money.