The timepiece was owned by Oscar Woody, who perished along with 1,520 others when the luxury liner struck an iceberg and sank in the Atlantic Ocean in 1912.
His body was recovered from the sea 10 days later and all of his possessions were removed so they could be sent back to his family.
Among the treasured items was his gold plated Ingersoll watch and chain that was damaged as the disaster unfolded.
The pocket watch's glass screen had smashed and its two hands snapped off.
However, it was found with an imprint showing where the minute hand had been pointing between four and five.
This chimes with the time the Titanic sank at 21 minutes past two on April 15, 1912.
Mr Woody, who was from Virginia in the US, served as the postmaster on the Titanic.
He had been selected to take charge of the mail room for the ship's maiden voyage on April 10, 1912 after spending 15 years as a railroad mail clerk.
Mr Woody was joined four colleagues in the mailroom and they were expected to sort through the 400,000 letters by the time it reached New York six days later.
As the ship started to sink, Mr Woody and his colleagues made a futile attempt to save hundreds of mailbags by carrying them to the upper decks.
They were last seen feverishly sloshing through the freezing water, grimly intent on carrying out their ever-hopeless task.
The three US clerk's families received $2,000 (£1,677) for their loss by their government.
The timepiece was later returned to Mr Woody's widow, Leila. Years later she passed it on to her late husband's masonic lodge.
The gold plated pocket watch now belongs to a private collector of Titanic memorabilia and is set to be sold at auction this weekend.
Andrew Aldridge, a fourth generation auctioneer for Henry Aldridge & Son, said: "We are getting a considerable amount of interest in this item already.
"This is probably one of the most iconic and important items of Titanic memorabilia offered for auction in recent years.
"It is a microcosm of time. When the watch died, so did the ship. It has signified the end of a life ever since.
According to the auctioneer, the watch has also been exhibited in some of the most prestigious museums globally, including The Smithsonian Postal Museum and Titanic Museum Attraction in Missouri.
Another piece of Titanic memorabilia is set to go on auction with Henry Aldridge and Son this weekend.
A list that detailed the first class passengers on the ship will go under the hammer and is expected to fetch a whopping £60,000.
A professional card dealer was the owner of the list and he 'worked' onboard the famous cruise liner to target the rich in order to fleece them out of their millions.
Unsuspecting George Brereton carried the list of first class passengers and studied them closely, making it his mission to identify the wealthiest people and circle their names on the list as a potential 'mark'.
The unscrupulous professional even wrote the word 'millionaire' next to the name of Charles Hays, a VIP guest of White Star Line boss Bruce Ismay.
The mastermind survived the sinking by sneaking into a lifeboat, which were initially reserved for women and children, along with Mr Ismay.
Mr Hays, who was president of Canada's Grand Trunk Railway, perished in the disaster along with over 1,500 people.
After carrying out some more money-making schemes, Brereton committed suicide 30 years after the Titanic sunk.
The list was acquired directly from Brereton's great niece by the late Ken Schultz, who was a leading collector of Titanic memorabilia.
Although it is over a decade old, the 20-page booklet is in remarkably good condition and will go on sale this weekend.
Brereton's list and Mr Woody's pocket watch will go under the hammer this Saturday (November 19) at Henry Aldridge & Son Auctioneers of Devizes, Wiltshire.
