Burnley manager Stan Ternent still insists his side will survive despite this huge setback.
The Clarets suffered a hugely disappointing defeat just two days after giving themselves a real shot in the arm with victory at fellow strugglers Walsall.
And the results contrived to drag Burnley back in to deep trouble in the relegation dog fight.
Ternent said: "We never got out of first gear and were really poor.
"We weren't anywhere near ourselves - I don't think any of the players played any where near their full capabilities.
"When that happens you normally lose and that's what happened. But I still say we will get the required points to stay in the division." Burnley took the lead on the half-hour mark, but it came against the run of play.
Watford had earlier hit the post when Brian Jensen managed to get a hand to Hameur Bouazza's firm header.
But Mark McGregor found the corner of the net to nudge the Clarets in front when substitute Luke Chadwick flicked on Robbie Blake's corner.
Just eight minutes later Burnley skipper Graham Branch made a reckless lunge at Paul Devlin inside the box, got nowhere near the ball and the resulting penalty was inevitable. Devlin dusted himself down to fire home the equaliser.
After the break the Hornets deservedly went in front when Heidar Helguson held off Branch and clipped the ball beyond Jensen.
The visitors looked to have sealed a critical three points when Lee Cook rifled in from the edge of the box with just seven minutes left.
Dele Adebola pulled one back with a header from two yards out but it was too late to save Burnley.
Right at the death Burnley could have snatched an incredible equaliser but Glen Little's cross managed to dissect Adebola, Lenny Johnrose and Mo Camara at the far post and Watford all but guaranteed their first division safety.