Watson, trying to win this senior major for the first time, had his second straight bogey-free round and moved to 12-under 198 after three rounds.
"He put us pretty far back. I think we're going to have to go all-out tomorrow," said Loren Roberts, who was tied for second place after shooting a 65. John Cook (65) and Mark Wiebe (66) joined Roberts at 8-under 202 and Jay Haas (67) was at 203.
Phil Blackmar also had a 64 Saturday to move into a share of sixth place with Morris Hatalsky (66) at 205.
Watson and Blackmar tied the course record set by Tom McKnight in 2007 and matched by Jeff Sluman last year.