Billy Davies' men had already been fortunate not to fall behind when a curling shot from Don Cowie had struck a post but, deep into stoppage time, referee Andy D'Urso came to the visitors' rescue.
Their problems had arisen when Lee Camp dropped a high Lloyd Doyley ball into the area under pressure.
Although the Forest keeper had done very well to block Henri Lansbury's follow-up, he was out of position when Tom Cleverley struck the ball back towards the target, only for it to be clearly blocked by Nicky Shorey's arm.
Incredibly though, D'Urso waved away the protests, which continued after the final whistle of a game that only really came to life in the last quarter.
The closest either side had come to making the breakthrough beforehand was in the opening period when a speculative effort from Adrian Mariappa was headed off the line by Chris Gunter after a long throw had been headed back to the Watford centre-half.
Camp also did well to keep out a Henri Lansbury pile-driver from 25 yards in the opening period, but he couldn't get a hand to a curling effort from Tom Cleverley on the hour mark that drifted inches wide of the far post.
The Forest keeper was also left looking at the same upright when Cowie struck a right-footed curler against it, but it looked like Forest would nick the points with six minutes remaining when a David McGoldrick cross from the left picked out substitute Dexter Blackstock.
He headed back and across Scott Loach, but the England Under-21 shot-stopper produced a fantastic flying save.
Watford keeper Danny Graham was only inches away from applying the finishing touch to a Cleverley cross before the dramatic conclusion which saw Forest make it 15 matches unbeaten, but only just.