Watson, wearing shorts and a jacket, was greeted by tens of thousands of spectators and surrounded by hundreds of boats as she entered Sydney Harbor more than two hours later than expected, at 1:53 p.m. local time on her yacht Ella's Pink Lady.
The sound of a hooter marked her entrance into the harbor and the end of her journey.
The Australian teenager waved from amid a large flotilla of boats, whose passengers cheered and applauded her arrival.
Water police were on hand in a bid to enforce an exclusion zone around her yacht before Australian customs officials boarded her yacht just after 2:05 p.m.
Watson will have to complete formalities with the officials before being allowed to disembark, stepping onto the Sydney Opera House's Man O' War jetty, after 210 days at sea and having sailed 23,000 nautical miles.
Watson will be greeted by her parents, Julie and Roger, as well as the Australian Prime Minister Kevin Rudd and New South Wales Premier Kristina Keneally as she makes her way down a pink carpet laid out for her homecoming.
Organizers have also ensured there is a golf cart ready if Watson, after seven months at sea, can't manage to walk as she is expected to suffer "sea legs" for at least a week.
Also in Sydney to greet her was fellow Australian Jesse Martin, who at 17 years old set the official record for being the youngest person to sail around the world solo and unassisted, as well as Mike Perham, who was the youngest person to sail around the world with assistance when he was 17.
Although the crowd enjoyed fine weather conditions along Sydney Harbor on Saturday, Watson had to battle winds up to 45 knots, making for rough conditions in her final stretch. She was also delayed by a torn mainsail.
Watson, three days short of her 17th birthday, has gathered hundreds of thousands of fans across the world who have followed her progress on her blog since she left Sydney on Oct. 18 last year.
Watson has battled 40-foot waves and six knockdowns during her journey, which took her northeast through the South Pacific and across the equator, south to Cape Horn at the tip of South America, across the Atlantic Ocean to South Africa, through the Indian Ocean and around Southern Australia.
Although Watson's feat will not be registered as a record by the World Speed Sailing Record Council because it does not recognize records held by people aged under 18, Watson will still be the youngest person to have sailed nonstop around the world, solo and assisted.
Her arrival in Sydney Harbor rivaled the waterway's busiest days — the Boxing Day start of the Sydney to Hobart Yacht Race, New Year's Eve and Australia Day