Forest remain winless in the League after crashing to a second disappointing home defeat in four days.
Manager Billy Davies made three changes to the Forest line-up which lost to West Brom, with Lewis McGugan, Rob Earnshaw and Dexter Blackstock coming in for Dele Adebola, Joe Garner and Radoslaw Majewski.
The game started at a high tempo and it was Forest who created the first chance after five minutes when Blackstock was bundled to the floor by Mike Williamson. McGugan's free kick was only half cleared to Paul Anderson on the edge of the box, but he could only volley high over the bar.
And Forest were then denied by a fine save by Watford goalkeeper Scott Loach after Anderson seized upon Scott Severin's weak back header and smashed the ball goalwards.
Lee Camp was then called into the action, turning Tommy Smith's low shot around the post.
Watford should have taken the lead after 15 minutes when Joel Lynch and McGugan got in a tangle. The ball reached Jobi McAnuff who crossed to the onrushing Ross Jenkins, but he sent his header inches over the bar.
The Reds were forced into a change after 25 minutes when McGugan was stretchered off after a collision with Loach, to be replaced by Majewski.
Five minutes later Watford were ahead. Smith made space down the right and chipped the ball to the far post, where Danny Graham got above Wes Morgan to head in from close range.
However, Forest got the equaliser their pressure deserved in first-half injury time.
Chris Cohen, Nathan Tyson, Chris Gunter and McKenna linked up well, before McKenna clipped the ball through to Blackstock, who chested it down before poking the ball past Loach from four yards.
And Forest could have taken the lead a minute later when Earnshaw was played in, but the angle was tight and he could only find the side netting as Forest ended the half in style.
Watford started the second half brightly and Severin flashed a shot over before the defence opened up to allow Tom Cleverley to burst through and round Camp, but the he fired over from a narrow angle.
The Forest team was frustrated when the referee waved play on after the ball appeared to strike a Watford arm in the penalty area. Lynch's through ball was dummied by Blackstock and, as Earnshaw looked clear, the ball hit Williamson on the arm.
But Watford were not to be denied and took the lead for a second time after 75 minutes.
Mariappa's free kick was headed against the post by Smith, but the rebound fell kindly to Williamson to tap into an empty net with the Forest defence motionless.
And Watford were 3-1 up four minutes later, when Jenkins laid the ball off to Smith who shot low past Camp and into the corner from 20 yards.
Watford were now enjoying themselves and David McGoldrick had to be alive to stop them making it four a minute later, kicking Jenkins's shot off the line from Jon Harley's corner.
Forest pulled one back after 86 minutes as Dele Adebola got his first goal for the club, running onto McGoldrick's pass to shoot low past Loach.
Forest turned up the pressure and Adebola was unlucky not to get on the end of Gunter's cross, before misdirecting his header as Cohen crossed from the other side.
There were five minutes of injury time, but it was the visitors who grabbed the vital goal as Cleverley, making his debut for Watford after signing on loan from Manchester United, ran onto a pass from the influential Smith to smash the ball high past Camp and into the roof of the net.
Nottingham Forest: Lee Camp, Chris Gunter, Wes Morgan, Joel Lynch, Chris Cohen, Paul Anderson(
David McGoldrick 64min), Paul McKenna, Lewis McGugan(Radoslaw Majewski 26min), Nathan Tyson, Robert Earnshaw, Dexter Blackstock(
Dele Adebola 75min)
Subs not used Paul Smith, Aaron Mitchell, Arron Davies, Joe Garner,
Bookings: Adebola 77min
Scorers: Blackstock 45min, Adebola 86min,
Watford: Scott Loach, Adrian Mariappa, Scott Severin(John Eustace 63min), Jay DeMerit(C), Tommy Smith, Danny Graham(Marvin Sordell 90min), Jobi McAnuff,(Jon Harley 61min) Lloyd Doyley, Ross Jenkins, Mike Williamson, Tom Cleverley
Subs not used: Richard Lee, Will Hoskins, Michael Bryan, Lee Hodson
Scorers: Graham 31min, Williamson 77min, Smith 80min, Cleverley 90+2min
Referee: A Bates
Attendance: 19,232 Away attn: 656