I’m sharing my experience with an Apple Watch Ultra 2 and Xcode 27.0 in case it helps someone troubleshooting a similar problem.
Developer Mode would switch on, restart the Watch, and ask me to confirm “Turn On.” Even after that confirmation, it would revert to off. Xcode detected my iPhone but not the actual Watch, and pairing remained at “Waiting to pair.” The changes that stood out in my case were removing a corporate management/configuration profile that required a complex passcode, changing the Watch to a simple passcode, and putting my Mac, iPhone, and Watch on the same private Wi-Fi network. I also temporarily disabled VPN, restarted both the iPhone and Watch, and enabled Developer Mode again. After these changes, the connection succeeded.
I changed several things together, so I can’t identify which change was responsible or claim this is a universal fix. This confirms the connection in my case; installing and running an app on the Watch is still being verified.
If your device is managed, consult your organization’s IT team before changing profiles or security settings. This is a report of what happened on my setup, not a recommendation to weaken passcodes or bypass organizational policy.