World number 126 Watson fought back to win four consecutive games and level the match but failed to pick up crucial points in the decider as Wozniacki sealed the victory after two hours and nine minutes of play.
Johanna Konta made her third consecutive quarterfinal at the Aegon International in her hometown of Eastbourne, battling past French Open champion Jelena Ostapenko 7-5, 3-6, 6-4 in a thrilling third round contest. "I've got a bit of a sore head right now but we'll see", Konta said courtside.
"I made this decision according to my health, regardless of what tournament is coming up next week", she said as she withdrew from her scheduled match against Karolina Pliskova. They swooped Djokovic on court and at 4-3 in the second he shouted: "Okay, I hear you." as they squawked above centre court.
"I think most importantly for me right now is just to look after my health in general". "What happens in the following 24 hours and the following 24 hours after that, I'll see once this 24 hours is up".
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There are also local hopes that Johanna Konta could be the first British victor since Virginia Wade in 1977 after a year in which she has established herself in the top 10 and enjoyed her biggest tournament win at the Miami Open in March.
But after the stoppage in play, Konta was able to close out the match.
Watson was disappointed to bow out but encouraged that her form is improving ahead of Wimbledon, where she will face Belgium's Maryna Zanevska, the world No 117, in the first round.
Second seed Halep beat Bulgarian Tsvetana Pironkova 6-7 (6) 7-6 (4) 7-5 in her third round match.
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"I got checked out and I've got no signs of concussion", said Konta.
Wozniacki, the former No. 1 now ranked sixth, will bid for her first title of the year in her fourth final. "I'm just happy to be through to the final".
Like Watson, owing to rain delays on Tuesday and Wednesday, Konta was faced with the prospect of playing twice in the same afternoon in her pursuit of a place in the final four.
"It's going to be a tough match".
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Britain's number one tennis player Johanna Konta had an eventful day on Thursday.