If I understand correctly what you're trying to say, the correct form would be:
Is it you who stole my watch?
Note the use of "is it" rather than "is that" - "that" generally refers to something external, as in "that person over there". We might say "is that you?" when pointing at a picture, and asking if it's a picture of the person we're speaking to, for instance. In this case, we're not pointing to any particular thing, so we just use the more neutral "it".
Or even, since the action occurred in the past:
Was it you who stole my watch?
This can be read as two clauses, which could stand as sentences on their own:
Who stole my watch? Was it you?
In the combined sentence, the "who" acts as a relative pronoun, like "which", and is the subject of the second clause. Compare:
Was it the elephant which stole my watch, or the monkey?
Was it John who stole my watch, or James?
Was it you who stole my watch, or someone else?