The Steps singer said that the surrogate mother had lost the child that he and partner Craig Ryder were going to raise.
He described hearing the news as the "worst moment" of his life.
"We were thinking of names, and we even planned our first Christmas as a family. We were both ready to be dads," he told The People.
"I just feel really empty and helpless. The only person who can help me is Craig."
Watkins said that his Steps bandmates were very supportive during their recent reunion concerts, and had all visited him when they heard the news.
He added: "The way I try to look at it is that there's another little star in the sky. It just wasn't meant to be for us at this time."
The pair had come through a lengthy adoption process, and eventually decided to turn to surrogacy.
Watkins and West End star Ryder have been together for nearly five years.
Steps reunited for a new Sky Living series On the Road Again to follow the pop group on their comeback tour earlier this year.