The world number 41 was dominated by a player ranked 48 places below her, and never got a foothold as the Swiss player completed victory in under an hour.
It represents a missed opportunity for Watson, who was the highest-ranked player in her half of the draw.
Top seed Kirsten Flipkens of Belgium also went out, losing in three sets to Magdalena Rybarikova.
In Bogota, top seed Jelena Jankovic cruised into the third round with a straight sets win over local player Mariana Duque, 6-3 6-2.
Italy lost its two representatives as Francesca Schiavone and Flavia Pennetta both went out in three sets to unseeded opponents.
Memphis International results:
Marina Erakovic (New Zealand) beat Jamie Hampton (U.S.) 7-5 6-2
7-Magdalena Rybarikova (Slovakia) beat 1-Kirsten Flipkens (Belgium) 6-7(11) 7-5 6-3
Stefanie Voegele (Switzerland) beat 4-Heather Watson (Britain) 6-1 6-2
3-Sabine Lisicki (Germany) beat 8-Kristina Mladenovic (France) 6-3 6-3
Copa Bogota results:
Karin Knapp (Italy) beat 3-Lourdes Dominguez Lino (Spain) 6-3 4-6 6-4
1-Jelena Jankovic (Serbia) beat Mariana Duque (Colombia) 6-3 6-2
Alexandra Cadantu (Romania) beat Tereza Mrdeza (Croatia) 4-6 6-3 6-4
Paula Ormaechea (Argentina) beat 4-Francesca Schiavone (Italy) 2-6 6-3 7-6(3)
Lara Arruabarrena Vecino (Spain) beat 5-Flavia Pennetta (Italy) 6-3 4-6 6-0