The British number two was well on the way to a resounding defeat, trailing 6-1 4-1 to the Japanese teenager when she called time on the match.
Watson, who came through two rounds of qualifying, received treatment in the second set for a shoulder injury and could not see the contest out.
WTA Toronto
Svitolina thumps Wozniacki to clinch Toronto title
13/08/2017 AT 19:07
The writing was on the wall from the opening game, which Osaka broke and then she raced into a 5-0 lead.
Watson avoided a whitewash by breaking Osaka's serve but could not hold on to her own service game and her opponent took the first set.
The second followed a similar pattern, Osaka breaking early, and when Watson knew there was no way back she retired.
WTA Toronto
Wozniacki upsets world number one Pliskova in Toronto
11/08/2017 AT 22:50
WTA Toronto
Konta suffers shock defeat in Rogers Cup second round
10/08/2017 AT 07:22