Born in Washington, D.C. to a journalist and Congressman, Watterson became a newspaper reporter early in his life. He fought for the Confederate States of America under General Nathan B. Forrest during the American Civil War, and edited a pro-Confederate newspaper, the Chattanooga Rebel.

After the war, Watterson edited newspapers in several states before settling down in Louisville, Kentucky to edit the Louisville Journal. When that paper merged with the Louisville Courier in 1868, the Courier-Journal was formed. This paper soon gained national attention for its excellent reporting. He was a leader of the Liberal Republican movement in 1872. Watterson was called "the last of the great personal journalists", writing colorful and controversial editorials on many topics. He won the Pulitzer Prize in 1918 for two editorials supporting U.S. entry into World War I, and he remained the editor until 1919.

During his tenure as editor, Watterson was a Democratic representative in Congress from 1876 to 1877, and was a five-time delegate to the National Democratic Convention. He became widely known as a lecturer and orator. His publications include History of the Spanish-American War (1899) and The Compromises of Life (1902).

The Henry Watterson Expressway, I-264 in Louisville, was named after him.

"Marse" Watterson appears on an 83p (£0.83) commemorative stamp from the Isle of Man Post Office, as part of a series honoring Manx-Americans.