Usually it just starts working after a day, after some random activity. Today it failed with my new Series 1 watch, reminiscent of the beta days.
The fix:
- Forget the WiFi hotspot on the iPhone (makes the Mac and iWatch forget it too, over iCloud keychain!)
- Disable bluetooth on the iPhone to break its connection with the watch
- Re-join the same WiFi on the iPhone and Mac
- Finally turn on bluetooth on the phone
The wifi settings will be propagated to the watch and now they're very likely all on the same network, maybe frequency too.
After these hoops, I was able to turn the checkbox on. And it works. At least until it doesn't 🙂
For troubleshooting, you can verify the watch's ability to join wifi by turning off bluetooth on the phone. Then look at the watch control center (swipe up from watch face). The green phone icon will turn into green cloud, if the watch is able to fall back to wifi. It tries to do that when it can't reach the phone over bluetooth.
Sometimes (don't know why) the watch forgets how to connect over wifi. Then auto unlock will fail too. The fix for that is the same procedure as above: Force the phone to forget the base station, then re-join and let the watch get the memo over bluetooth. Also make sure Handoff works reliably by visiting Mail.app on the watch. You should see the icon on the Mac Dock and iPhone lock screen.
I'm using Time Capsule "ac" network with a single SSID for 2.4/5 GHz, newest Apple hardware/software, good signals, and still it sometimes doesn't work. It's actually more reliable at the office, where there's a spotty 2.4 GHz 3rd party network. Seen these same problems since the feature was introduced in early betas, and GM is not fully reliable I learned today. Apple should provide honest troubleshooting instructions in its article and error messages. Great topic for Youtubers out there.