The Proteas could only manage 146 for five, with Xavier Doherty taking three vital wickets and Watson taking two, and the Aussies chased down the target with two overs to spare, thanks to Watson's knock off 47 balls.
It was a clinical performance from the Aussies, and it saw Watson earn his fourth Man of the Match award of the tournament, become the top run-scorer, wicket-taker and six-hitter in the event.
South Africa's innings got off to the worst possible start, with Richard Levi once again failing to live up to his potential, bowled off the third ball of the innings off Doherty for a duck.
Jacques Kallis didn't last much longer and became the spinner's second victim, caught behind by Matthew Wade off Doherty, feathering an edge while trying to run it down to third man. This left the Proteas on eight for two.
JP Duminy and Hashim Amla advanced the score to 33 and just as they looked like building a partnership, Watson's golden arms ruined such hopes. Amla tried to hook a bouncer and gloved it down the leg side for Wade to snaffle.
Duminy was then joined by skipper AB de Villiers, and they again looked to put together a decent stand, striking some lovely boundaries on their way to 64 in the 11th over, but Doherty was brought back to take a wicket and he did so immediately.
Duminy tried to step down the wicket to up the run rate, but the ball spun between his legs and he was half way down the pitch when Wade whipped his bails off, his score on 30 off 25 balls.
The going was incredibly tough for the Proteas as the bowling changed constantly, and when Watson returned to separate De Villiers and Farhaan Behardien, he made quick work of it. The skipper picked out his opposite number, George Bailey, in the covers to depart for 21.
Behardien and Robin Peterson did what the top order couldn't and upped the rate as much as they could with a flurry of boundaries, with the penultimate over going for 14 runs, including a massive six off Pat Cummins.
Two fours in the final over from Peterson took the score over 140 and the partnership past the fifty mark. Peterson ended on 32 off 19 balls, while Behardien' slower knock saw him end on 31 not out.
Australia's innings started well for the Proteas for the first few overs when the pacemen where on. Dale Steyn was superb, and then Morne Morkel got rid of David Warner with a peach that snuck through the gate.
But Watson continued to dominate the tournament and raced to his fifty off 35 balls, bringing it up with the biggest six of the tournament and the first one to go over 100m. The Aussies were on 76 for one after 10 overs and on their way to a huge win.
South Africa had a chance to get rid of the run machine, but Wayne Parnell dropped the looping catch, and just like Hashim Amla experienced against England, Watson's form was helped by a bit of luck.
Watson's innings finally came to an end when it was a little too late, with Peterson's delivery sent down Parnell's throat at long on, the score on 109 and Mike Hussey (45 not out) carrying on at the other end.
Australia: Shane Watson, David Warner, Mike Hussey, George Bailey, Cameron White, Glenn Maxwell, Matthew Wade, Brad Hogg, Pat Cummins, Mitchell Starc, Xavier Doherty
South Africa: Richard Levi, Hashim Amla, Jacques Kallis, AB de Villiers, JP Duminy, Farhaan Behardien, Wayne Parnell, Johan Botha, Robin Peterson, Dale Steyn, Morne Morkel
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