Watt can be activated to the Cardinals' 53-man roster at any point during the next three weeks or at the end of the 21-day period. He can start practicing with the team starting Friday.
The move means Watt could be back for a playoff game, with him eyeing a potential return in the NFC Wild-Card game, sources told ESPN's Jeremy Fowler.
Though the Cardinals won't determine Watt's practice schedule and activity until Tuesday, "I think he's going to try to play," a source told ESPN.
Watt suffered the shoulder injury on Oct. 24 in a Week 7 game against his former team, the Houston Texans. He had what was believed to be season-ending surgery on the shoulder and was seen in a sling on the Cardinals' sideline during games, but he has been more active during the past month or so.
Before the Monday Night Football game against the Los Angeles Rams in Week 14, Watt was on the field, doing individual pass-rushing drills while using the goalpost pad to simulate an opposing lineman.
"It's procedural,'' coach Kliff Kingsbury said of the move to designate Watt to return. "He's done all he can do in the training room and weight room. So we'll get him back out there, work him through some things.
"But he's attacked that rehab just like you'd assume he would. Nobody's seen anybody go at it quite like he has over the past couple months. It's been awe inspiring to watch him every day and it's always good to have him back on the field.''