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Apple has just rolled out the latest beta releases for most of its major platforms, including beta 4 for watchOS 7.4 and iOS 14.5. This update brings the ability to use your Apple Watch to unlock your iPhone while you're wearing a mask.
For public beta testers and developers, you can now try this feature out. The Apple Watch needs to be nearby or on your wrist as well as unlocked and protected by a passcode for this feature to work. And you'll need to have iOS 14.5 on your iPhone, too.
9to5Mac points out that if you unlock your Apple Watch with your iPhone using Face ID before putting on a mask, you can skip the step of entering a passcode on either device.