He was the son of John Watson, a civil servant. He was born at Manningtree, Essex, and educated at Stirling and at Edinburgh University, later studying theology at New College, Edinburgh, and at Tübingen.
In 1874 he entered the ministry of the Free Church of Scotland and became assistant minister of Barclay church, Edinburgh. Subsequently he was minister at Logiealmond in Perthshire and at Glasgow, and in 1880 he became minister of Sefton Park Presbyterian Church, Liverpool, from which he retired in 1905.
In 1896 he was Lyman Beecher lecturer at Yale University, and in 1900 he was moderator of the synod of the English Presbyterian Church. While travelling in the United States he died at Mount Pleasant, Iowa.
Maclaren's first sketches of rural Scottish life, Beside the Bonnie Briar Bush (1894), achieved extraordinary popularity and were followed by other successful books, The Days of Auld Lang Syne (1895), Kate Carnegie and those Ministers (1896), and Afterwards and other Stories (1898). Under his own name Watson published several volumes of sermons, among them being The Upper Room (1895), The Mind of the Master (1896) and The Potter's Wheel (1897).