Nightwatch was established to recruit ordinary citizens, including local law enforcement, and encourage them to uncover and report on what were perceived to be "subversive" activities. Such subversion was deemed to include open criticism of Earth Alliance policy or the Clark regime, interacting with aliens on anything more than a professional basis, or anything else Clark deemed to be a threat to his new order. The Nightwatch also had the power and authority to make arrests without warrants, detain suspected subversives indefinitely, and spy at will on the population.
Nightwatch began by offering extra credits to various people to be their eyes and ears ; Babylon 5 security officer Zack Allan and others decided to join. Initially in it for the extra money, Allen soon became more and more disturbed over the escalation of Nightwatch's activities and the erosion of civil liberties that was happening with Nightwatch around.
Nightwatch and the Ministry of Peace were very closely integrated, and were for all practical purposes one and the same by the time the Ministry attempted to assign Julie Musante to Babylon 5 as a political officer. Musante attempted to compromise Sheridan by bedroom politics (which was observed by a holographic projection of Ivanova), which failed. Later addressing the station's Nightwatch contingent, she informed them that they were now part of the political office, telling Zack his concern over due process was moot when he raised the question.
With events on Earth coming to a head, Captain Sheridan and the others knew that the Nightwatch was a threat they would have to deal with. When Clark issued a decree imposing martial law, Nightwatch was ordered to take over station security. Finding a loophole in the orders, Sheridan stated that since they been issued by a civilian office outside the military chain of command, the orders were therefore illegal.
Knowing he finally had a way of dealing with Nightwatch, Sheridan approached Zack, who agreed to help the command staff take care of the threat. Going to his Nightwatch superiors, he revealed that a ship was arriving with a number of Narns who would take over station security. Believing that they could catch Sheridan in the act, nearly all the Nightwatch personnel went to the airlock where the ship was supposed to be docking. When everyone was assembled in the docking area, Zack gave the orders that sealed the Nightwatch personnel in the room. Placing them all under arrest, Sheridan charged all of them for attempted mutiny and failure to respect the chain of command. Each Nightwatch operative was ordered to come out one at a time and surrender their weapons, equipment, and links. Sheridan then revealed that the local Narn population was then going to join the remaining human Babylon 5 security; as he put it, hiding a lie within the truth.
The official Nightwatch presence on B5 ended after the station declared independence from the Earth Alliance. All the known Nightwatch personnel were sent back to Earth, but a small covert group eluded capture. Briefly taking Ambassador Delenn and several other Minbari as hostages, they were finally either killed or captured when the station's command staff initiated a rescue. Though the Babylon 5 branch of the organization was shut down, the Nightwatch remained an active force throughout the Earth Alliance until Earth itself was liberated by the resistance.