Leading the five-match series 3-0, Australia captain Michael Clarke made the bold decision on Thursday to bowl first in overcast conditions in the fourth Test at the MCG.
England reached 3-135 at tea with Ian Bell on 11 and Kevin Pietersen fighting his attacking instincts to score an unbeaten 20 off 57 balls.
Watson has the tidy figures of 1-11 but pulled up short as he attempted to run in to bowl the fifth ball of his seventh over.
Cricket Australia said in a statement the 32-year-old Watson had a groin problem.
"Shane Watson has some right groin pain and is currently being assessed by the medical staff on when he can return to the field," CA said.
Watson's list of previous injuries have included hamstring and calf concerns.
His latest drama seemingly opens the door for allrounder James Faulkner to win a recall for the fifth Test in Sydney on January 3.
Pietersen was once again part of the drama as well. The star No.4 was caught on the fine-leg boundary by Nathan Coulter-Nile on six, but the sub fielder overbalanced and stumbled across the boundary rope.
Coulter-Nile, replacing Watson, made an unsuccessful attempt to throw the ball back in the air and regather it when standing back inside the field of play.
A crowd of over 80,000 has packed into the MCG as officials hope for a new world record of over 90,800.
England captain Alastair Cook battled for 70 minutes for his 27 and shared an opening stand of 48 with Michael Carberry.
Cook appeared caught in two minds and played at a wide ball from Peter Siddle, which the left-hander edged to rival skipper Michael Clarke at second slip.
After averaging 127.66 on his previous Ashes tour, Cook has produced 181 runs at 25.85 this summer and is struggling with his batting form and his captaincy.
Dropped at third slip on two, Carberry was 26 not out at lunch. The left-hander added another 12 to his tally before he played no shot and was bowled by an inswinger from Watson coming around the wicket.
Joe Root was out for 24 at 3-106 after edging to wicketkeeper Brad Haddin as Ryan Harris made a key breakthrough.
Clarke's decision to bowl was the first time Australia had inserted England since Ricky Ponting's ill-fated move at Edgbaston in 2005.
"I can't believe I'm saying this. We're going to have a bowl first," Clarke said at the toss.
"There's enough moisture and grass on the wicket."
ENGLAND FIRST INNINGS
A COOK c Clarke b Siddle 27 (47)
M CARBERRY b Watson 38 (103)
J ROOT c Haddin b Harris 24 (82)
K PIETERSEN not out 20 (57)
I BELL not out 11 (35)
Sundries (10b 5lb) 15
Three wickets for 135
Fall: 48 (Cook), 96 (Carberry), 106 (Root).
Bowling: R Harris 15-8-22-1, M Johnson 12-1-39-0, P Siddle 13-4-32-1, N Lyon 7.2-3-16-0, S Watson 6.4-2-11-1.
Batting time: 239 mins. Overs: 54.
Umpires: Aleem Dar (PAK), Kumar Dharmasena (SRL).