diff --git a/agent/consul/state/catalog.go b/agent/consul/state/catalog.go
index b6eb4aa09c..4452298b76 100644
--- a/agent/consul/state/catalog.go
+++ b/agent/consul/state/catalog.go
@@ -955,22 +955,43 @@ func (s *Store) ServicesByNodeMeta(ws memdb.WatchSet, filters map[string]string)
 //   * block until an instance for this service is available, or another
 //     service is unregistered.
 func maxIndexForService(tx *memdb.Txn, serviceName string, serviceExists, checks bool) uint64 {
+	idx, _ := maxIndexAndWatchChForService(tx, serviceName, serviceExists, checks)
+	return idx
+}
+
+// maxIndexAndWatchChForService return the maximum Raft Index for a service. If
+// the index is not set for the service, it will return the missing service
+// index. The service_last_extinction is set to the last raft index when a
+// service was unregistered (or 0 if no services were ever unregistered). This
+// allows blocking queries to
+//   * return when the last instance of a service is removed
+//   * block until an instance for this service is available, or another
+//     service is unregistered.
+//
+// It also _may_ return a watch chan to add to a WatchSet. It will only return
+// one if the service exists, and has a service index. If it doesn't then nil is
+// returned for the chan. This allows for blocking watchers to _only_ watch this
+// one chan in the common case, falling back to watching all touched MemDB
+// indexes in more complicated cases.
+func maxIndexAndWatchChForService(tx *memdb.Txn, serviceName string, serviceExists, checks bool) (uint64, <-chan struct{}) {
 	if !serviceExists {
 		res, err := tx.First("index", "id", serviceLastExtinctionIndexName)
 		if missingIdx, ok := res.(*IndexEntry); ok && err == nil {
-			return missingIdx.Value
+			// Not safe to only watch the extinction index as it's not updated when
+			// new instances come along so return nil watchCh.
+			return missingIdx.Value, nil
 		}
 	}
 
-	res, err := tx.First("index", "id", serviceIndexName(serviceName))
+	ch, res, err := tx.FirstWatch("index", "id", serviceIndexName(serviceName))
 	if idx, ok := res.(*IndexEntry); ok && err == nil {
-		return idx.Value
+		return idx.Value, ch
 	}
 	if checks {
-		return maxIndexTxn(tx, "nodes", "services", "checks")
+		return maxIndexTxn(tx, "nodes", "services", "checks"), nil
 	}
 
-	return maxIndexTxn(tx, "nodes", "services")
+	return maxIndexTxn(tx, "nodes", "services"), nil
 }
 
 // ConnectServiceNodes returns the nodes associated with a Connect
@@ -1870,7 +1891,8 @@ func (s *Store) checkServiceNodes(ws memdb.WatchSet, serviceName string, connect
 	if err != nil {
 		return 0, nil, fmt.Errorf("failed service lookup: %s", err)
 	}
-	ws.Add(iter.WatchCh())
+	// Note we decide if we want to watch this iterator or not down below. We need
+	// to see if it returned anything first.
 
 	// Return the results.
 	var results structs.ServiceNodes
@@ -1879,9 +1901,31 @@ func (s *Store) checkServiceNodes(ws memdb.WatchSet, serviceName string, connect
 	}
 
 	// Get the table index.
-	idx := maxIndexForService(tx, serviceName, len(results) > 0, true)
+	idx, ch := maxIndexAndWatchChForService(tx, serviceName, len(results) > 0, true)
+
+	// Create a nil watchset to pass below, we'll only pass the real one if we
+	// need to. Nil watchers are safe/allowed and saves some allocation too.
+	var fallbackWS memdb.WatchSet
+	if ch == nil {
+		// There was no explicit channel returned that corresponds to the service
+		// index. That means we need to fallback to watching everything we touch in
+		// the DB as normal. We plumb the caller's watchset through (note it's a map
+		// so this is a by-reference assignment.)
+		fallbackWS = ws
+		// We also need to watch the iterator from earlier too.
+		fallbackWS.Add(iter.WatchCh())
+	} else {
+		// There was a valid service index, and non-empty result. In this case it is
+		// sufficient just to watch the service index's chan since that _must_ be
+		// written to if the result of this method is going to change. This saves us
+		// watching potentially thousands of watch chans for large services which
+		// may need many goroutines. It also avoid the performance cliff that is hit
+		// when watchLimit is hit (~682 service instances). See
+		// https://github.com/hashicorp/consul/issues/4984
+		ws.Add(ch)
+	}
 
-	return s.parseCheckServiceNodes(tx, ws, idx, serviceName, results, err)
+	return s.parseCheckServiceNodes(tx, fallbackWS, idx, serviceName, results, err)
 }
 
 // CheckServiceTagNodes is used to query all nodes and checks for a given
diff --git a/agent/consul/state/catalog_test.go b/agent/consul/state/catalog_test.go
index 8eca00c5b6..ed29ebd040 100644
--- a/agent/consul/state/catalog_test.go
+++ b/agent/consul/state/catalog_test.go
@@ -3021,43 +3021,11 @@ func TestStateStore_CheckServiceNodes(t *testing.T) {
 		t.Fatalf("bad")
 	}
 
-	// Overwhelm node and check tracking.
-	idx = 13
-	for i := 0; i < 2*watchLimit; i++ {
-		node := fmt.Sprintf("many%d", i)
-		testRegisterNode(t, s, idx, node)
-		idx++
-		testRegisterCheck(t, s, idx, node, "", "check1", api.HealthPassing)
-		idx++
-		testRegisterService(t, s, idx, node, "service1")
-		idx++
-		testRegisterCheck(t, s, idx, node, "service1", "check2", api.HealthPassing)
-		idx++
-	}
-
-	// Now registering an unrelated node will fire the watch.
-	ws = memdb.NewWatchSet()
-	idx, results, err = s.CheckServiceNodes(ws, "service1")
-	if err != nil {
-		t.Fatalf("err: %s", err)
-	}
-	testRegisterNode(t, s, idx, "more-nope")
-	idx++
-	if !watchFired(ws) {
-		t.Fatalf("bad")
-	}
-
-	// Also, registering an unrelated check will fire the watch.
-	ws = memdb.NewWatchSet()
-	idx, results, err = s.CheckServiceNodes(ws, "service1")
-	if err != nil {
-		t.Fatalf("err: %s", err)
-	}
-	testRegisterCheck(t, s, idx, "more-nope", "", "check1", api.HealthPassing)
-	idx++
-	if !watchFired(ws) {
-		t.Fatalf("bad")
-	}
+	// Note that we can't overwhelm chan tracking any more since we optimized it
+	// to only need to watch one chan in the happy path. The only path that does
+	// bees to watch more stuff is where there are no service instances which also
+	// means fewer than watchLimit chans too so effectively no way to trigger
+	// Fallback watch any more.
 }
 
 func TestStateStore_CheckConnectServiceNodes(t *testing.T) {