Watson regained her rhythm in the third as she kicked off with a double break but, again, she squandered four championship points at 5-1 up.
Nevertheless the 27-year-old Watson fought on and converted a forehand winner on her tenth match point to seal the title.
Following the contest which lasted two hours and 46 minutes, Watson is now projected to re-enter the top 50 of the WTA singles rankings - up from 69.
Watson’s most recent title before this also came in Mexico at Monterrey in 2016.
WATSON: I'M REALLY, REALLY HAPPY
"I'm so happy to get my fourth title," Watson said post-match.
It’s been a few years, so I’m just really, really happy I came through that match.
She added: "I’ve played Leylah two times before this, and I knew what to expect.
"She’s a great player, and it would be really tough because the two matches before that had been really tough. The thing I notice about her the most is the head on her shoulders. She’s very, very mature for her age.
"I think it’s her mental toughness that really stands out," Watson continued. "I think she’s going to have a great career ahead of her and rise up the rankings very quickly if she keeps playing like this."