Watson, 23, who joined Edinburgh in 2011 as an Academy player before becoming a full time pro, played through the international age grades and was capped for Scotland at under-19 and under-20 levels.
With 24 appearances for the club, and two tries, his power and work-rate have been to the fore this season, noticeably in the wins over Munster and Bordeaux-Bègles.
He was invited to train with the Scotland squad prior to the viagogo Autumn Tests in November though a broken jaw sustained in Edinburgh's European Cup win over Lyon the previous month curtailed his involvement for both country and club. Hamish returned to come off the bench in the 1872 Cup win over Glasgow Warriors on 2 January.
Watson said: "It's great to know, so early, that I'll be with the club for the next two seasons.
"Last season my opportunities were a bit limited then I started the first game after the summer and got into a good run.
"The highlights for me this season have been that first game beating Munster away, the win in France over Bordeaux-Bègles and the last five minutes when I came off the bench in the 1872 Cup win last Friday.
"That gives us great momentum going to Connacht this weekend and, as a team, we want to push into that top six in the league.
"These are really exciting times, going forward."
Twenty-two-year-old lock Ben Toolis joined the club, along with twin brother Alex, in summer 2013, as an Academy player, then graduated to a full pro contract in 2014.
Now with 14 caps for the club, the 6ft 7in former volleyball internationalist really came into his own during the autumn, following the injury to Grant Gilchrist during the European Cup win over Lyon. Born in Brisbane, Toolis qualifies to represent Scotland through his Lanarkshire-born mum, Linda.
Toolis said: "Obviously things have happened a bit sooner than I expected and I'm really happy, it's the right decision for me. Now I'm getting game time, Edinburgh are on the rise and I want to be part of it.
"Getting the full 80 minutes in both games against Glasgow to win the 1872 Cup, sharing that experience with the boys was really special. Last Friday's match was definitely the biggest game of my career so far."
Though his chance to show what he could do came about through bittersweet circumstance in the Lyon fixture - Ollie Atkins injured during training and Gilchrist breaking his arm during the match led to his appearance from the bench - Toolis was grateful for the opportunity.
"It gave me the chance to put my hand up and show what I could do, for the rest of that game. After that I was given the opportunity to start.
"I want to keep getting good game time, keep playing well for Edinburgh and helping to back up our performances."
Both players' new contracts are effective from 1 June 2015.
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