The 28-year-old enjoyed a successful loan period with The Royals earlier this season and now Reading have moved to being him to The Madejski Stadium on a permanent basis.
Watson has agreed a three-year contract and will make his full debut at Chesterfield on Saturday.
"With no disrespect to Rotherham they are always going to struggle to keep their heads above water for the simple fact that they only average gates of around 6,000," said Watson.
"Reading are a massive club and I don't see anything else happening apart from them playing in Division 1 next season because of the position they are in.
"But even if Reading were not in that position I would still have wanted to come. They are a big club and it's given me and my family the chance to move back down south.
"I wouldn't have been able to afford to do that unless it was a football move as the house prices are three times as much."
Watson was seemingly forced out of Rotherham by a section of fans, who did not like the fact he had been on loan to Reading.
Rotherham boss Ronnie Moore admitted to be disappointed at losing Watson.
"I am gutted because we have lost a hell of a player who I can't replace for that amount of money," he told The Millers official website.
"They got him dirt cheap because the player is distraught at the amount of stick he has received from a handful of supporters.
"I tried to talk him into staying but when you get as much abuse as he did in the Stockport game, it proved that the doubting Thomases have had their way.
"He knows he is a good player but a minority of the crowd have made his life hell and the club have had to pay the penalty for that.
"The vast majority of supporters have appreciated what he has done for the club and the others will probably find out next year when he is spraying the ball about for Reading against us."
Meanwhile, Rotherham have handed a trial to former Derby defender Con Blatsis.
