Watson, who returned from a four-game suspension last week, had his roster exemption expire at 4 p.m. ET on Monday, making him a free agent. He reacted to the team's announcement on social media.
"The God of victory is also God in failure," Watson wrote on Twitter. "I gave my all, but it was not enough to earn a spot on the @Patriots roster. I'm beyond disappointed but even more upset for my family who has supported me with all the love a husband and father could ask for. They are my heroes."
The decision to release Watson leaves the Patriots with fourth-year veteran Matt LaCosse and second-year pro Ryan Izzo at the tight end position. LaCosse missed time earlier in the season with an ankle injury but played Sunday against the Washington Redskins.
The Patriots created about $2 million in salary-cap space by not activating Watson.
New England originally selected Watson in the first round of the 2004 NFL Draft out of Georgia. He played six seasons with the franchise before spending time with the Cleveland Browns, New Orleans Saints and Baltimore Ravens.
In 195 career games, Watson has recorded 530 receptions for 5,885 yards and 44 receiving touchdowns. His best season came in 2015 with the Saints, when he notched career highs in catches (74) and receiving yards (825) with six touchdowns.