The National League North club have confirmed the successor to Elliott Dickman, who left earlier this month.
Watson, a player for Blyth Spartans and Darlington, has spent time as an assistant manager to Mike Williamson at Gateshead, Carlisle United and Milton Keynes.
His CV shone with over 50 applications and Watson has “established himself as one of the brightest and most progressive young coaches in the country” according to Shields.
Chairman Geoff Thompson is excited about next season and thinks the club have the right man.
"I’m delighted to welcome Ian to the club,” he said. “His track record and experience are exceptional, and I’m excited to see the progress the team will make under his leadership.
“His appointment reflects our continued ambition to drive this club forward. This is just the first of many exciting developments on the horizon."
Lee Picton, the club’s Sporting Director, said: “Ian is someone I have known for a long time and I’ve followed his progress and success over recent years with huge interest.
“For me, it’s not just the calibre of his football and coaching brain that excites me, it’s his abilities as a leader and a standard setter that make him the ideal appointment.
“He also has a proven track record in operating very shrewdly in the transfer market, while adding enormous value to players who are already in the building.”