Apple has introduced the ability to use Face ID with a mask in iOS 15.4 beta, no Apple Watch required.
Face ID is most accurate when it's set up for full-face recognition only. To use Face ID while wearing a mask, iPhone can recognize the unique features around the eye area to authenticate. You must be looking at your iPhone to use Face ID while wearing a mask.
Users can toggle the feature ON from the 'Face ID & Passcode' page in Settings.