Goals from Ross McCormack in the first half and two from Peter Whittingham and Chris Burke after the break brought victory against a Hornets side that battled hard throughout.
The Bluebirds were forced to make changes with Darcy Blake at centre-back in place of Anthony Gerrard and Paul Quinn at full-back for Kevin McNaughton.
McCormack retained his place up front leaving Michael Chopra on the bench.
Watford were without injured skipper Jay DeMerit and were captained by veteran John Eustace as they tried to put a stop to a run of 11 away matches without a victory.
After pushing the visitors right back from the opening whistle, the Bluebirds took the lead in the seventh minute with a superb strike from McCormack.
Whittingham sent over a deep corner kick and McCormack raced in to volley first time into the net from just inside the area.
The Hornets went close when an overhead kick by Will Hoskins flew over the home crossbar and midway through the half Mark Kennedy headed a goalbound effort behind for a corner.
When the flag-kick came in, the ball crashed against the City crossbar from a Martin Taylor header with David Marshall beaten.
Watford were well on top and Quinn was forced into a goal-line stop to prevent Hoskins levelling just before the break.
Kennedy suffered a back injury in the first half and was replaced by Tony Capaldi for the start of the second period.
Totally against the run of play, the Bluebirds doubled their lead in the 63rd minute when a cross from Chris Burke was headed in by Whittingham for his 21st goal of the season.
Watford keeper Steve Loach made an acrobatic save to keep out a Jay Bothroyd header but City pushed forward and a length of the field move ended with Burke having two shots at goal before beating Loach with his second attempt in the 78th minute.
The Hornets deservedly pulled a goal back in time added on through Heidar Helguson but City's victory pushed them further away from the pack chasing play-off places.