The British-born actress, who grew up in Australia, stars in Oliver Hirschbiegel's upcoming drama Diana, which tells the story of the last two years of the icon's life before she died in a car crash in Paris, France in 1997.
Watts, who has been spotted filming scenes over the summer (12), admits the role was "more complicated and sensitive" than she had anticipated because she wanted to respect the late royal's sons, Princes William and Harry - and she is hoping audiences approve of her portrayal of the princess.
She tells Britain's The Sun, "I am dreading the reaction amongst the pubic to my playing her. You know that people will complain that you don't look enough like her, that you're not tall enough, all those things.
"It's very difficult to play someone who had such a deep impact and left such a lasting memory on the public. Our memory of her is still very fresh and you have to be respectful of that.
"It's also more complicated and sensitive when you take into account her two boys - William and Harry. But I want to do her justice and help tell her story truthfully."
Watts admits she will always remember the day Diana passed away, adding, "I was shooting a movie in Canada when she died.
"I was in a room full of people watching the news about Diana's death and we were all crying and deeply upset. It's one of those events you never forget."