Yaser Asprilla gave Watford the lead but George Hirst subsequently netted for the Blues to leave the scoreline at Vicarage Road 1-1 at half-time.
Town boss Kieran McKenna made five changes from the team which won 2-0 at Middlesbrough on Saturday.
As expected, Massimo Luongo and Brandon Williams returned to the XI following their suspensions with Jack Taylor and Harry Clarke dropping to the bench.
Axel Tuanzebe came in for Luke Woolfenden, who was also among the subs, at the centre of the defence.
Omari Hutchinson and Marcus Harness replaced Wes Burns and Nathan Broadhead on the left and right of the three with the latter duo also on the bench.
Skipper Sam Morsy started, despite being on nine bookings with a 10th leading to a two-match ban ahead of the Norwich and Leeds matches.
For Watford, former Blues loanee Jake Livermore returned to the side having missed the weekend 1-1 draw at Southampton due to a knee problem with Francisco Sierralta switching to the bench.
There was a change to the scheduled referee from David Coote to Darren England, the official at the centre of the VAR error in the Tottenham-Liverpool game in September.
Heavy rain had been falling before the match and continued as it got under way with Blues sponsor Ed Sheeran and former Hornets chairman Elton John watching from the stands.
The home side created the first moment of potential danger in the third minute, Ken Sema crossing from the left and Mileta Rajovic looping a header wide.
After a cagey spell, the Blues threatened for the first time in the 10th minute, a well-worked move ending with Williams crossing to Harness, whose header failed to test Ben Hamer in the Watford goal.
A minute later, the Hornets took the lead. Town keeper Vaclav Hladky played an uncharacteristically poor pass to Yaser Asprilla on the right of the area when trying to find Cameron Burgess. The Colombian international squared to Rajovic, Hladky saved the striker’s shot but the ball bounced out to Asprilla on the right of the area from where he smashed the ball through a crowd of Town players into the net.
Despite having gone behind, the Blues began to take control the game and on 19 Harness left a Leif Davis ball from the left and Conor Chaplin struck a shot but it was too close to Hamer, who claimed.
Within a minute, the Hornets had gone close at the other end, Livermore heading back across goal and wide from a corner, the ball evidently catching a Town player as referee England awarded another flag-kick.
But Town had been the better side since the goal and levelled in the 24th minute. Hirst nodded down to Harness, who swept the ball wide to Hutchinson. The on-loan Chelsea man hit a shot which deflected to Hamer’s right and although the keeper saved, he was only able to palm it into the path of Hirst, who stroked his sixth goal of the season over the line from close range.
Three minutes later, Jamal Lewis turned a Sema cross from the left wide as the home side looked to quickly restore their lead.
On 29, Sema sent over another dangerous ball from the left which Davis and Asprilla battled for beyond the far post, the Watford man sending the ball back across the face and wide.
A minute later, Edo Kayembe bizarrely sent the ball floating over his own bar and against the stanchion from 20 yards under pressure from Luongo, referee England awarding a free-kick against the Australian international.
Hutchinson had been Town’s biggest threat and the forward went close to putting the Blues in the lead on 31, curling a shot from the right of the area just beyond the far post.
Two minutes later, Hirst nodded down to Harness not far outside the area and the former Portsmouth man hit a snapshot which Hamer saved down to his left, not entirely comfortably.
Town had the ball in the net for the second time, Hirst heading home from a Davis free-kick on the left but with referee England having blown up for a foul very early as the ball came over.
Moments later, Chaplin was shown the first yellow card of the evening for a foul on Sema as Watford broke inside their own half.
As the half moved into its final five minutes, Watford put the Blues under a spell of pressure, Ryan Andrews shooting well over from not far outside the area.
In the final scheduled minute, Hirst joined Chaplin in the book for catching Ryan Porteous with an arm as they challenged for an aerial ball, although replays suggested it was more head to arm than the other way around.
Seconds before the whistle, Hladky missed a free-kick as it came over from the left but the ball was too long.
The half-time scoreline was a fair reflection with both sides having had spells on top, although with Town having presented perhaps the greater threat, mainly through Hutchinson cutting into the area on the right.
The Watford goal came from a rare Blues error when passing out from the back, the wet conditions perhaps playing a role, but Town played themselves more into the game and an equaliser had been on the cards when it came.
Watford: Hamer, Hoedt (c), Porteous, Lewis, Livermore, Rajovic, Kone, Sema, Asprilla, Kayembe, Andrews. Subs: Bachmann, Sierralta, Ince, Healey, Pollock, Chakvetadze, Bayo, Dele-Bashiru, Martins.
Town: Hladky, Williams, Tuanzebe, Burgess, Davis, Morsy (c), Luongo, Hutchinson, Chaplin, Harness, Hirst. Subs: Walton, Clarke, Woolfenden, Taylor, Burns, Broadhead, Jackson, Scarlett, Ladapo. Referee: Darren England (Doncaster).