"You feel like you have to hide it within motorsport because it's a very masculine sport," the 37-year-old, who retired last year, told Autosport on Monday.
Speaking also to Gay Times, Watts said he had felt he would "need to live in the closet if I wanted my motorsport career to go anywhere.
"There were enough gay jokes and homophobic slurs to go around, and I felt like if I lifted my head out of the trenches I'd be completely annihilated."
He said he had dealt with the situation by becoming "one of the worst of the womanisers".
Autosport said Watts, who was a team mate to Ferrari's 2007 Formula One world champion Kimi Raikkonen in the Formula Renault junior series, was believed to be the highest profile European driver to come out.
At the top level in Formula One, a grand prix world championship that started in 1950, there has yet to be an openly gay driver.
Twice a winner of the second tier LMP2 category at the Le Mans 24 Hours sportscar race, Watts is now focused on coaching drivers.
He said he no longer had to worry about how teams or sponsors might react but had no idea what response his announcement would receive from a motorsport audience. The immediate comment on social media was supportive, however.
"It shouldn't be a story, but the fact it is says much about (the) culture of racing," commented broadcaster and long-time F1 insider Mark Gallagher on Twitter.
(Reporting by Alan Baldwin, editing by Ed Osmond)
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