To preface: I'm not a cargo-watch user, but I've been in a discussion with one, helping them work around some issues where the sanest workaround is an out-of-tree build (TLDR: bind mounts in Docker on anything but Linux have longstanding performance issues, OP in the Reddit discussion cut their build time by something close to 20x).

What I proposed, as a solution to their issue, is a Dockerfile that looks like this:

RUN mkdir -p /build
WORKDIR `/src`
ENTRYPOINT cargo watch -C /build -x run --manifest-path=/src/Cargo.toml -- --your-arg

It seems reasonable to add that --manifest-path argument automatically if -C is present. Perhaps do not change the behavior of existing -x, but rather add a new flag, -X.