Gladiator and A Beautiful Mind actor Russell Crowe is playing Ailes, the late Fox News founder, in the limited series, which he is also executive producing.
"As the first woman to file a sexual harassment suit against Ailes, which led to her firing, Carlson was pivotal in changing the conversation in the U.S. before the #MeToo movement and in bringing down the previously untouchable media titan," a Showtime press release said.
Director Kari Skogland -- whose credits include The Handmaid's Tale -- will start filming the first two episodes next month.
Watts is known for her roles in Twin Peaks, The Glass Castle, Birdman, The Impossible, 21 Grams, King Kong and Le Divorce.
Ailes left Fox News in July 2016 following allegations from Carlson and Kelly. He died in May 2017 at the age of 77.
Carlson won a sexual harassment lawsuit against Fox News and Ailes in September 2016 that resulted in a $20 million settlement from the network.