Watson, who played for Scotland in the early 1880s, was inducted along with Gordon McQueen, Frank McLintock, Bob McPhail and Pat Stanton.
Richard McBrearty, the Scottish Football Museum's curator, revealed the importance of South American-born Watson at the dinner following research by himself and his Hampden colleagues.
"In his day he was a celebrity," said McBrearty. "He was the Beckham of his time and I seriously mean that.
"There is a cracking reference to him in a Scottish newspaper, the Scottish Athletic Journal, [with] his life story under the title of 'athletics celebrities'.
"He was really at the top of the game in the UK, which is where the global game started. At that time, Scotland was shaping the future of the game.
"He was forgotten, just like so many players of his era. We have done a lot of research on the early years of the game and he will now become a well-known figure in Scotland, but his legacy is global. He was the first black international footballer."
According to the SFA website, Watson was born in 1857 in British Guiana, now called Guyana, the son of Scottish sugar planter Peter Miller and local woman Rose Watson. He enrolled at Glasgow University in 1875 and played for Maxwell and Parkgrove before signing for Queen's Park, who he captained to several Scottish Cup wins.
The defender won three Scotland caps in 1881-82, helping the team to two victories over England and one against Wales, with 16 goals scored and three conceded in the process.
McBrearty added: "By 1880, he moved to Queen's Park and his career starts to soar. Within a year, he wins the Scottish Cup. He was captain of Scotland when they won 6-1 against England at Kennington Oval. He only won three caps but that's partly because by 1882, because of business interests, he moved to London and was away from the eyes of the selectors."
Watson was signed by Corinthians, who attempted to emulate the Queen's Park team that provided much of the successful Scotland side by signing the cream of English football.
"The two most important teams in the UK at the time were Queen's Park and Corinthians," McBrearty said.
"Watson was the first non-English player to be chosen for that team, which sums up how sought after he was.
"Corinthians beat the successful Blackburn side 8-1 in the 1884 FA Cup final and Watson was playing."
Despite the popular Watson being selected for Scotland, McBrearty and his team have found evidence that he might have come up against prejudice.
"The article does mention on occasion he comes up against 'splenetic bad-tempered football players'. Reading between the lines, you can say it would have maybe been racism on the pitch.
"But what's interesting is that same article and others don't just talk about Watson the brilliant footballer, they talk about Watson the fantastic human being.
"It talks about his genial nature and mentions that when he came up against such types, he rose above it and let his football do the talking."