His resignation ends speculation that he was preparing to leave, following his decision to step down from chief executive in November and take on the role of creative partner.
He hands over his responsibilities to the chief executive, Fiona Scott, and managing director, Jackie Stevenson. The agency has no plans to replace Watson leaving the creative directors, Rebecca Rae & David Brown, to run the creative department.
Scott said: "David is a huge industry talent and we'll him miss enormously. Seventeen years is a long time to be at any company, so we completely understand his decision. We wish him all the best in whatever he decides to do next."
The news comes as the agency prepares to defend its First Direct business, which is its third flagship account to call a review in the last six months. Orange and Land Rover both completed reviews by moving their business into Wunderman.
Watson said: "Craik Jones is a fantastic agency and I'm really proud of all that we've achieved here together. It is among the strongest brands in direct marketing, and with the talent here I have absolutely no doubt it will remain so."