He temporarily returned to training last season and notched up two Premiership appearances with Cross Keys but failed to fully recover and has been advised to retire.
Watchurst admits he career-ending news is a devastating blow but he remains positive about life off the pitch.
"It's been a very tough 18 months since the injury and I'm absolutely devastated that a full recovery isn't going to be possible," said Watchurst.
"I would like to thank the Dragons management, coaches, medical staff and physiotherapists for sticking by me through this injury.
"It has been a privilege to play with and against some of the best players in the world and can honestly say that I've enjoyed every moment.
"I'm not going to dwell on what could have been and just look forward to a life off the field.
"Rugby has taught me so much and I'm really looking forward to taking these transferable skills into a new career."
Watchurst, who played two times for the Dragons, skippered Wales Under-20s at the 2010 Junior World Championship and in the Six Nations.