Watson went toe-to-toe with the 20-time Grand Slam winner and came back from a poor first set where she was clearly overwhelmed by the veracity of Williams’ serve and shot making.
Williams was broken twice to trail 3-0 in the decider before turning things around, winning 6-2, 4-6, 7-5 on Friday to keep alive her bid for a calendar-year Grand Slam.
The crux of both set and match came when Watson fended off five break points??when chasing a four-love lead but could not protect a sixth.
Williams unleashed a primal roar when setting up her fourth break point but??needed two more to start her comeback.
Williams rallied from 40-0 down to break Watson again and level the set at??three games apiece but still Watson refused to buckle.
A clearly unhappy Williams was forced to defend another break point in the very next??match but this time held firm.
Watson produced a robust service hold to level the set at four games apiece,??rebuffing Williams once more. And then the gutsy Brit broke Serena for the third time in the set, stunning??the five-time Wimbledon winner.
That left Watson to serve for the match. The pressure peaked when Williams??claimed two break points, only for Watson to rally to deuce.
Williams grabbed a third break point – so Watson blasted down an ace. The fourth break point proved one too many however, Williams wrestling level once more.
The champion in Williams finally surfaced as she produced a brutal service game to love, before converting a third match point to set up that meeting with her big sister.
The 59th-ranked Watson had the partisan Centre Court crowd roaring throughout but fell short of becoming the first British woman to beat a No. 1 since Sue Barker defeated Chris Evert in Boston in 1979.
Williams will next face big sister Venus in the fourth round. While Watson departs the main draw doubtless dejected, but must hold her head high??for a stellar performance, lacking only victory.