Following his training at the Royal Academy of Dramatic Art, Watkins established himself as a stage actor. He is a member of the National Theatre company.
He was nominated for a Laurence Olivier Theatre Award in 2001 (2000 season) for Best Supporting Actor for his performance in A Servant For Two Masters (Young Vic, subsequently transferred to New Ambassadors Theatre). Other theatre work includes Rafts and Dreams at the Royal Court Theatre, Philistines and Landscape with Weapon (by Joe Penhall) at the National Theatre, London (2007) and A Laughing Matter (by April De Angelis) at the Liverpool Playhouse in 2003 (for which he was hailed as "magnificent" for his portrayal of the actor David Garrick).
In 2018 he played the predatory serial killer Ralph in a revival of Bryony Lavery's play Frozen at the Theatre Royal Haymarket.
Watkins's most prominent television roles have included the vampire leader William Herrick in Being Human; the crime suspect Jason Buliegh in Conviction; Bradley Stainer in Funland; and the dog-walking crime witness Francis Cross in Five Days. He also played Oswald Cooper in "The Great and the Good", an episode of Lewis; Plornish in the 2008 BBC production of Little Dorrit; and Cabbage Patterson in the BBC adaptation of Lark Rise to Candleford. He had a cameo in episode seven of the second series of Life on Mars, as Gene Hunt's dissolute lawyer Colin Merric. In 2006 he played the (real-life) pioneering radiologist Ernest Wilson in a BBC pilot, Casualty 1906. Also in 2006 he played the part of Sir Christopher Hatton in The Virgin Queen, a four-part BBC drama. He then featured in the second series of the BBC's comedy Psychoville, as Peter Bishop, owner of Hoyti Toyti, an antique shop specialising in toys.
Since 2011 he has also appeared in the Sky1 sitcom Trollied as the store manager Gavin. In early 2012 he joined the cast of the BBC drama Prisoners' Wives, appeared as Detective Gilks in Dirk Gently and portrayed a smooth Church of England PR man in Twenty Twelve.
On 11 May 2013 he appeared in the Doctor Who story Nightmare in Silver, written by Neil Gaiman, featuring the Cybermen in their current design. Also in 2013 he played an anaesthetist in The Wrong Mans. In 2014, he appeared as Simon Harwood in BBC comedy series W1A. A second series aired in 2015 and a third is being broadcast in 2017.
In 2014 he played the leading role in a two-part ITV drama entitled The Lost Honour of Christopher Jefferies, about the innocent initial suspect in the 2010 murder of Joanna Yeates. He won the BAFTA TV Award for Best Actor in this role.
In 2016 Watkins played the role of Pastor Hansford in the four-part ITV drama The Secret. Watkins appeared in two episodes of The Hollow Crown and played the role of Malcolm Turner in the BBC sitcom series Love, Nina. He narrated the Channel 4 documentary series The Job Interview, appeared as Tony Michaels in an episode of Friday Night Dinner and was cast as Mr Humphries in the BBC revival of Are You Being Served?.
In 2017 Watkins played Solomon Coop, private secretary to the Prince Regent (later George IV), in the BBC One series Taboo. Also on BBC One, Watkins performed as Wilfred Lucas-Dockery, the governor of the prison in the third episode of the BBC's adaptation of Evelyn Waugh's novel Decline and Fall. He played Simon in the second series of ITV drama Safe House in 2017. In 2018 he played Roger in the BBC sitcom Hold the Sunset and Emlyn Hooson in the Russell T Davies miniseries A Very English Scandal.
Watkins played Prime Minister Harold Wilson in the third series of Netflix drama The Crown and is providing the voice of Captain Orchis in the BBC adaptation of Watership Down.
Watkins's most prominent film role to date has been the vividly camp gay wedding planner Gregory Hough in the 2006 comedy Confetti. He has also played smaller roles in High Hopes, Bridget Jones: The Edge of Reason, Tomorrow Never Dies, The Golden Compass, Wild Child and Nativity! and its follow-up Nativity 2: Danger in the Manger. His son, Freddie, played his pupil in Nativity!.
Watkins is married to jewellery designer Clara Francis. In 2011 their two-and-a-half-year-old daughter Maude died of sepsis. He dedicated his 2015 BAFTA award to her and campaigns for greater awareness of sepsis. Watkins and his wife have two other children, Bessie and Gilbert. Watkins also has two sons from his first marriage.