Australia's Cam Smith was tidily placed in joint-fourth place, three shots off the lead.
Rahm, starting on the par-4 second, birdied his opener and ended with another on No. 1 in a round that included six birdies in a nine-hole stretch at the JCB Golf and Country Club, Rocester.
The first-round 63 is Rahm's best LIV round since he fired a second-round 63 at LIV Nashville on June 22.
Andy Ogletree is two shots back and tied with Abraham Ancer in second place, a shot clear of Tyrrell Hatton and Smith at 5 under.
Rahm, who played with Hatton on Friday, finished tied for seventh at the Open Championship in Scotland last week.
Rahm and Hatton pushed Legion XIII to the team lead at 12 under, one stroke up on Ancer's Fireballs, captain Brooks Koepka's Smash and captain Phil Mickelson's HyFlyers.
Koepka, Louis Oosthuizen, Paul Casey and Graeme McDowell (Smash) are part of a seven-way tie for sixth place at 4 under.
With six holes remaining in his round, Watson (2 under) held the early lead before carding double-bogey 6s on both the 485-yard sixth and 470-yard seventh hole.
Australia's Matt Jones, Lucas Herbert and Marc Leishman were in a multiway tie for 19th after finishing the day two under.
