Apple Explains How Unlocking iPhone With Apple Watch Works
With the launch of iOS 14.5 and watchOS 7.4, Apple introduced a feature that's designed to allow people wearing masks to unlock their iPhones with a paired and authenticated Apple Watch, alleviating the need to continually enter a passcode.
Apple has published a support document outlining how the feature works and the requirements that enable it to function. Apple says that the Apple Watch unlocking process is not using Face ID to recognize and authenticate you, so the same facial scan that allows Face ID to unlock your phone isn't happening here.
There are a specific set of requirements that allow the Apple Watch to authenticate your identity for unlocking an iPhone. You'll need an iPhone X or later with iOS 14.5 or later and an Apple Watch Series 3 or later with watchOS 7.4 or later, which must be paired together.
Both WiFi and Bluetooth need to be activated for communication between the iPhone and the Apple Watch, and the Apple Watch needs to have a passcode and wrist detection must be enabled. Unlock with Apple Watch needs to be expressly turned on for it to function, and you can find the feature in Settings > Face ID & Passcode.
For the Apple Watch to authenticate your identity the watch needs to be on your wrist and unlocked, and you need to be wearing a mask that covers both the mouth and the nose, presumably to signal to the iPhone to use the secondary unlocking method rather than Face ID.
To unlock the iPhone with the Apple Watch, you need to wake your iPhone by raising it or tapping the screen, and then glance at it to unlock. The requirement to glance at the iPhone is meant to prevent the feature from working when you're not close by your iPhone, and though not mentioned by Apple, there definitely seems to also be a proximity requirement because it will tell you if you're not close enough to your phone.
This is a feature that can allow someone else that's not you to unlock your iPhone if they're near you, have your iPhone, and are wearing a mask, so enabling it should be done with caution if other people have access to your device and you're worried about security.
It's worth noting that Unlock with Apple Watch only works for unlocking the iPhone. It does not verify identity for use with Apple Pay, passwords in Keychain, or password-protected apps, which will require either Face ID or your passcode.
Though not as secure as Face ID, Unlock with Apple Watch is a convenient option for those who are tired of having to enter a passcode on their devices while wearing a mask.