Town were robbed of a first League win of the season with a Nathan Ellington goal in added on time.
Gareth McAuley's second goal in four games seemed to have given Town a deserved victory until Ellington struck with virtually the last kick of the game, stabbing the ball in from six yards.
Roy Keane made two changes to the side that drew with Swansea at the weekend, Carlos Edwards and Lee Martin coming in on the flanks for Alan Quinn and Jaime Peters.
Town got off to the perfect start after four minutes with McAuley heading home following Jon Walters' flick across goal from Liam Rosenior's free-kick.
Walters should have made it two soon after, Edwards and Rosenior linking up well down the right flank and the striker getting on the end of the cross but seeing his effort hit the bar from close range.
John Eustace sent a header straight at Asmir Begovic in Watford's first effort, Jon Harley then booked for pulling back Edwards.
Liam Trotter fired over from the edge of the box as Town continued the bright start, Martin sending a curler wide before Pablo Counago became the first Blue to go in referee Trevor Kettle's book, the Spaniard punished for a foul.
Counago had a header tipped over by Scott Loach, Rosenior seeing a shot deflected as Town continued to knock on the Hornets' door.
Henri Lansbury sent a strike over the bar at the other end, Begovic quickly off his line to clear after Tommy Smith's header threatened to fall short off the 'keeper.
Edwards robbed Harley but his shot drifted just wide of the far post, the impressive Grant Leadbitter going close with a drive from distance as Blues pressed for that all-important second goal.
Peters replaced Martin at the break, the Canada international quickly into top gear with a run that tested Lee Hodson. Watford enjoyed a spell of pressure on the Town goal, Adrian Mariappa heading wide from a free-kick.
Town made a second change on the hour, Counago making way for Connor Wickham. Edwards was denied by Loach's outstretched foot as Blues went close to a second. Ellington then replacing Eustace in Watford's first substitution.
Wickham had a flicked header go just wide of the far post, then just failed to take advantage of Edwards' pass following a break.
McAuley headed wide after Edwards' cross was knocked back into the box, Loach then doing well to tip over Edwards' cross, with Wickham failing to get his header on target from the resultant corner.
The England U17 international fared much better with another header from Leadbitter's corner, Loach's fingertips preventing a second goal, the 'keeper then holding firm from Tommy Smith's header.
Ellington sent a free-kick comfortably to Begovic as the game entered the last five minutes, Leadbitter and Ross Jenkins both booked after squaring up.
Alan Quinn replaced Walters in added on time and the four minutes were enough for Watford to conjure up an equaliser, Ellington volleying in from close range to deny Blues a deserved three points.
Town: Begovic, Rosenior, McAuley, Smith, D.Wright, Edwards, Leadbitter, Trotter, Martin (Peters 46), Walters (Quinn 90), Counago (Wickham 60). Subs not used: Lee-Barrett, Bruce, Priskin, Colback. Booked: Counago, Leadbitter.
Watford: Loach, Hodson, Mariappa, Cathcart, Doyley, Jenkins, Eustace (Ellington 63), Harley, Cowie, Lansbury (Bryan 89), Graham. Subs not used: Bond, Severin, Bennett, Hoskins, Henderson. Booked: Harley, Jenkins.
Att: 19,284




















