The British number two, fresh from her run to the semi-finals in Birmingham last week, was on the verge of registering one of the biggest wins of her career against last year’s French Open champion.
But world number nine Swiatek battled back to secure a 6-3 6-7 (4) 7-5 victory.
Watson dropped the first set thanks to a solitary break but hung on in the second to force a tie-break.
Swiatek’s composure began to desert her as she trailed 3-0 and Watson was able to level the match.
Watson, twice a semi-finalist at Devonshire Park, was then gifted a break by a double-fault from the 19-year-old and converted another break point with a spectacular backhand down the line.
But Swiatek clawed her way to 4-4 and despite some stiff resistance from Watson she was unable to complete a third career win over a top-10 opponent.
Swiatek said on court afterwards: 'My legs are going to be tired tomorrow.
'I have a love-hate relationship with grass so winning will give me more confidence, especially against such an experienced player.'