The Canadian national, whose group annually disrupts Japan's whale hunt, has been held in custody for more than a week as investigators examine charges against him that stem from a confrontation in Costa Rica in 2002.
The activist was detained at Frankfurt airport after Costa Rica issued an international arrest warrant.
Authorities in Costa Rica allege Mr Watson's crew aboard Sea Shepherd's Ocean Warrior ship endangered a fishing vessel during a confrontation off Guatemala's coast in 2002.
Speaking to reporters outside the prison, Mr Watson said he was happy to be leaving jail.
"It's a relief to be out after a week. I didn't expect something that happened from 10 years ago to sneak up on me in Germany," he said.
"I had to take action with my crew a decade ago to protect hundreds of sharks and of course, those shark poachers have very powerful allies in government and in other places."
A court has granted him bail pending a decision on whether he will be extradited.
Costa Rica has three months to make its case, then the German justice minister will decide whether to grant extradition.
Sea Shepherd has embarked on over 200 voyages, according to the group's website.
Mr Watson is now the captain of the Steve Irwin vessel.
The group, which has increasingly clashed with Japanese whalers in the Southern Ocean, prides itself on "innovative direct-action tactics" to confront so-called illegal activity on the high seas - including the use of acoustic weapons, water cannon and stink bombs against whalers.
The not-for-profit group has also trailed seal hunters and fought campaigns for sharks and dolphins, as well as regularly patrolling the Galapagos Islands.
In 2010 it clashed violently with Japanese boats, leading to the sinking of Sea Shepherd's high-tech superboat boat Ady Gil in the remote Southern Ocean.