Watson, who was adjudged man of the match for the third consecutive game, shared a first-wicket stand of 133 with David Warner (63 not out) as Australia eased past India’s 140-7 in the 15th over.
Warner smashed three sixes and seven boundaries and Watson plundered seven sixes and two fours in a batting treat for a sell-out crowd of 35,000 at the Premadasa stadium.
The pair treated the Indian bowlers with disdain as Warner lofted Harbhajan Singh for two successive sixes and Watson hit leg-spinner Piyush Chawla for two sixes in his first over.
When seamer Irfan Pathan came on to bowl the 10th over, Watson greeted him with a sequence of 6, 6 and 4 to bring up Australia’s 100 in the same over.
Watson fell in the 14th over when just eight more runs were needed for victory, caught in the covers off Yuvraj Singh.
Watson’s match-winning display followed his 51 and 3-26 against Ireland and 41 not out and 2-29 in the second game against the West Indies.
Australia join Pakistan, who beat South Africa by two wickets earlier on Friday, at the top of group two with one win each.
Earlier, makeshift opener Pathan made 31 and Suresh Raina boosted the total towards the end with 26 off 19 balls after Indian captain Mahendra Singh Dhoni won the toss and elected to bat.
Raina put on 30 for the sixth wicket with Dhoni and 33 for the seventh with Ravichandran Ashwin, who remained unbeaten on 16 off 12 balls.
India dropped seasoned opener Virender Sehwag to play five specialist bowlers, including three spinners, and sent all-rounder Pathan to open the innings with Gautam Gambhir.
Pathan hit two fours and a six, but India lost three wickets in seven balls to slip from a comfortable 70-2 to 74-5.
Watson claimed two wickets in one over, forcing Yuvraj to hole out in the deep before getting Pathan caught in the covers.
In the next round of matches on Sunday, Australia take on South Africa and India clash with Pakistan at the same venue.