I bought a new 2018 Mac mini (6-core i7) in Jan 2019 and despite a couple of tech support calls with Apple, could never get my Series 3 watch to unlock it. I had no trouble with the auto-unlock on a 2014 Macbook Air, but never on the Mac mini.
On the MBair I've been running Big Sur beta for a couple of months, with Catalina on the MM.
Last month I got a new Series 6 watch. Boom - auto-unlock on the MM worked! And it worked on the MBair with Big Sur final beta.
Having some experience with Big Sur, I went ahead and updated the Mac mini on Friday. And then ... not only did the auto-unlock not lock, but I got the same "Your Mac was unable to ..." message. But it was still fine on the MBair. So I was pretty sure it was a machine-specific issue.
After reading the messages in this thread this morning I was able to resolve it (at least initially) by:
- Tried the Keychain toggle and was surprised to see that the box was not checked. So I checked it, rebooted, nothing changed.
- Toggled it off/on once more and then rebooted and then tried it after powering down. Nothing changed.
- Unpaired the Series 6 watch, then paired it, then rebooted the MM again.
- Went into System Preferences | Privacy & Security and was able to check the auto-unlock box without getting the "Your Mac was unable to ..." error. Hopeful!
- Waited about 30 minutes for the Mac mini to screen lock, then tried it and Boom! it worked.
Thanks, tim3g and others!