The Town defender reacted quickest following a free-kick to drive the loose ball past Huerelho Gomes from close range to edge an entertaining encounter in front of the second biggest crowd at Portman Road this season.
The win was also Blues’ first over the Hornets on home soil for 10 years, leaving Mick McCarthy’s side two points adrift of Derby at the top.
Town made one change to the side that beat Wolves in midweek, Jonny Williams replacing the suspended Luke Hyam.
After a superbly respected minute’s silence - as always at Portman Road - in memory of those who have lost their life in conflict since the First World War - it was the visitors who started the brighter and Gianni Munari should have put them ahead in 10 minutes, Bart Bialkowski doing well to make the save from close range.
Town responded in style though, Luke Chambers’ cross was met by the outside of Daryl Murphy’s foot and the ball was destined for the top corner until Gomes came to Watford’s rescue with a fingertip save.
Murphy then twisted away from his marker and sent a right foot effort at Gomes, Chambers denying Matej Vydra at the other end with an excellent tackle as the Hornets broke.
Juan Carlos Parades did equally as Murphy looked favourite to convert David McGoldrick’s wicked cross.
In a free-flowing game, Chambers blocked the effort of Fernando Forestieri as he burst into the box, with both sides creating enough chances to have troubled the scorers.
Chambers got in the way of Troy Deeney’s shot from 10 yards to bring an entertaining first-half to an end and it was the Watford striker who got the second 45 minutes underway with a right foot effort over the bar after Vydra had led a counter attack.
Smith was denied as he attacked a corner, McGoldrick then crowded out at the near post.
Williams was forced off just before the hour following a heavy challenge from Joel Ekstrand that earned the defender a yellow card, with Teddy Bishop the replacement.
Stephen Hunt’s lob drifted just over as Town pressed for the opener but Watford went even closer, Vydra escaped down the right and found Forestieri with a terrific cross but the Italian striker couldn’t keep his shot below the bar from close range.
Kevin Bru sent a right foot volley just wide as Town edged the play, the midfielder then testing Gomes with another effort that the former Tottenham ‘keeper clung on to.
Christophe Berra did superbly to block substitute Odion Ighalo’s strike inside the Town box as the game entered the closing stages and the breakthrough finally came eight minutes from time, Smith smashing a right foot effort into the net after a clever free-kick had fell into his path eight yards out.
It was enough to give Town a third successive win going into the international break, with Blues right in the thick of the promotion race.