The Watauga River rises in Watauga County, North Carolina, a mountainous county in western North Carolina along the Tennessee state line. Crossing into Johnson County, Tennessee it is soon impounded by the Tennessee Valley Authority's Watauga Dam. This impoundment receives two important tributaries, the Elk River and Roan Creek, whose former valley of bottom land forms a very large embayment of Watauga Lake. The lake is bridged by Tennessee Highway 67 just as the watercourse enters Carter County. The Appalachian Trail crosses the Watauga River at Watauga Dam. The Watauga Dam product diverts much of the river flow here into a tunnel. The water flows out through turbines at the end of this tunnel, generating hydroelectric power. Just below Watuaga dam is Wilbur Dam, a dam which forms a small but very deep lake. Now operated by the TVA, it actually predates that agency and was a project of the former Tennesee Electric Power Company, a privately-owned utility bought out by TVA in the late 1930s.

The Watauga flows basically north and then west into the Carter County seat of Elizabethton, where it receives the flow of the Doe River. Below Elizabehton is the Sycamore Shoals State Historic Site, where the "Overmountain Men" assembled to march off to the Battle of Kings Mountain during the American Revolutionary War. On the line between Carter County and Washington County is Watauga Steam Plant, another development of the Tennessee Valley Authority. A considerable portion of the line between Washington County and Sullivan County, Tennessee is formed by the Watauga watercourse. At the end of this portion of the stream is another TVA development, Boone Dam, which is actually located on the South Holston River just below the confluence of the two streams, causing most of the water of the downstream portion of the Watauga to be slack.

The word "Watauga" is supposedly a Native American word meaning "beautiful river". The original settlers of Nashville, Tennessee had set out from this area, called the Watauga Country, during the American Revolution when they realized that the British Proclamation of 1763 forbidding settlement of its colonists west of the Blue Ridge Mountains was essentially now unenforceable. As a result, there are many references to "Watauga" in the Nashville area, even though it is approximately 250 miles (400 km) west of this area, including an apartment building, a small lake in Centennial Park, and the like. (There was even a secret organization of businessmen in the 1960s and 1970s which essentially ran the city of Nashville called "Watauga".)