Sources informed ESPN and the Houston Chronicle of the move Monday. Watson's fifth-year option has a value of $17.5 million for the 2021 season. The Texans can still negotiate for a long-term pact with Watson before that season.
Watson, 24, completed 67.3 percent of his throws for 3,852 yards, 26 touchdowns and 12 interceptions in 15 starts last season. The two-time Pro Bowl selection posted a 10-5 record as a starter in 2019.
Watson, who joined the Texans as the No. 12 overall pick in the 2017 NFL Draft, has a 24-13 record in three seasons with the AFC South franchise.
Watson is 1-2 in the post-season after the Texans beat the Buffalo Bills in the AFC wildcard round in January.
The star quarterback has worked out with Texans teammate Laremy Tunsil this off-season. Tunsil signed a three-year, $66 million contract this week to become the NFL's highest-paid offensive lineman. Watson could become the league's highest-paid quarterback when he signs his new deal. That would likely mean he receives between $35 million and $40 million annually.
The 24-year-old quarterback will make less than $4.5 million in 2020.