Watson made 18 saves on Sunday as Canada was blanked 3-0 by the United States in the tournament's championship game.
"Corb played outstanding all tournament and he gave us a chance to win every game, including today, and we just didn't capitalize on creating any offence for him," Canadian head coach Ken Babey said.
During round-robin play, Watson posted shutouts in his first three games and made 10 saves for Canada against Russia in the semifinals. His play earned him the tournament's best goaltender honours.
Steve Cash countered with eight saves for the U.S. — which won its third world title.
Declan Farmer broke a scoreless tie 2:58 into the third period for the United States, with Daniel McCoy and Joshua Pauls adding to the American lead.
Although Canada entered the tournament with its sights set on gold, Babey was still trying to find positives out of the experience.
"I think we had a good tournament. I think it's always disappointing when you don't win the gold," said Babey, who was coaching his first world championship. "We moved up to second from third in the world rankings, so it's a step in the right direction and it should motivate us as we go into the future."
The Canadians entered the tournament as underdogs despite winning the last worlds in 2013. A bronze medal at the Sochi Paralympics and bronze at the world sledge hockey challenge earlier this year posed pre-tournament concern.
"You only have so many chances to play in gold-medal games," said Canada's captain Greg Westlake. "For me, this was the first one I've ever lost. I've been in three gold-medal games, and I've won them all. It's different being on this side, but it is what it is."
Westlake, a native of Oakville, Ont., finished the worlds with 10 points, three behind teammate Billy Bridges, who won the tournament's scoring title. Babey was impressed with the play of both Westlake and Bridges.
"Greg Westlake was a very strong leader for us in this tournament and he's one of Canada's best leaders in sledge hockey," said Babey.
"So you have to recognize his efforts and Billy Bridges also and Adam Dixon had outstanding tournaments. Those guys continue to be the backbone of the program so to speak so we just have to find some other players who will rise up to their level."
Earlier in the day, Sochi silver medallist Russia edged Norway 2-1 in overtime to win bronze.