The British No 2 overcame the world No 17 Mertens in the quarter-finals of the Hobart International last week but the tables were emphatically turned in Melbourne.
After battling past Kristyna Pliskova in the opening round on Wednesday, Watson simply could not sustain her level, succumbing to the Belgian in just 56 minutes.
And the 27-year-old admitted she fell short physically and this time could not overcome the gap of 58 places between the players in the world rankings.
“I felt like my level wasn’t there, my movement felt like I was a millimetre or a second too slow and I was letting her dictate,” said Watson.
“It was one of those days physically, you don’t feel amazing every day and today was that day unfortunately.
“As the match went on I thought she played better and was more aggressive. I was not happy with my performance at all.
“My level was a lot lower than Hobart and her level was higher, but because my level was lower I allowed her to step up and play a lot better.
“She is ranked where she is for a reason and I had to play a lot better than I did to have a chance.”
Play was delayed on Thursday because of heavy rain that dumped a layer of dust on the outside courts, and it was late afternoon by the time Watson and Mertens began their contest.
There was still a reddish-brown hue to the court, and Watson made an inauspicious start by dropping serve in the opening game.
She recovered the break straight away and then held serve, but that would be the only time she would lead in the match, with Watson simply making too many errors against an opponent who retrieves extremely well and is capable of punishing a short ball.
Things went downhill swiftly for Watson in the second set, the fight draining out of the 27-year-old, who won only eight points in the six games.
The defeat left Harriet Dart, who was due to face Wimbledon champion Simona Halep in the night session, as the last remaining British hope in singles.
PA contributed to this report