World No. 30 Elena Rybakina denied Watson a second major scalp, following the Guernsey woman’s excellent quarter-final dispatch of No. 17 Elise Mertens, and with it her chance to regain a Hobart title she had won in 2015.
But Watson has nevertheless made a major improvement on her own world ranking – up to No. 75 from her previous 101.
She lost her semi 3-6, 6-4, 4-6 as her 20-year-old Kazakhstani opponent fought valiantly through a reported muscle pull in her leg during the late stages of the 2hrs 16min. duel.
Rybakina had converted three out of four break points to claim the first set, but Watson found a way back into the match by racing to a 5-1 lead in the second and held off a late fightback by her opponent to set up a decider.
Despite struggling physically in the third set, Rybakina was able to hold her serve and broke a tiring Watson once more to progress to the final, where she will meet Zhang Shuai of China.
Having coming through qualification, Watson has demonstrated fine form in beating several favourably ranked players and hopes to carry this form into the Australian Open next week.
Her competition in the first Grand Slam of the year will begin next Tuesday against Kristyna Pliskova, a Czech player currently ranked No. 62.
Watson had earlier marked cracking the world top 60 to qualify for the Tokyo 2020 Olympic Games as the main objective for the long campaign ahead.