It was the Gills first victory at Priestfield since they beat Millwall in mid-August and came with goals by Mama Sidibe, his first for the club, Guy Ipoua and substitute Kevin James with a superb 20-yard chip in stoppage time.
Gillingham took the lead after only two minutes when Sidibe knocked the ball in at the far post after Ipoua had headed down skipper Paul Smith's pass.
Gillingham goalkeeper Jason Brown then pulled off a fine save to keep out a Stephen Glass free-kick and Gillingham could have added further early goals but efforts from Andy Hessenthaler and Smith went wide.
Gillingham increased their lead just after the half hour when Hessenthaler, playing against his old club, crossed from the right and Ipoua headed home his fifth goal of the season.
Watford changed things at the start of the second half, switching for 4-4-2 to 3-4-3, bringing Tommy Smith on in place of Allan Neilsen.
Brown denied Watford twice more keeping out efforts from Danny Webber, who hit the bar in the first half, and Smith while Heidar Helguson saw his looping header bounce off the far post.
Both teams used all three subs and it was Gillingham's James an 81st minute replacement for Ipoua who made the biggest impact. He scored an excellent third with the game already deep into added time.
Hessenthaler, one of three ex-Watford men in the Gills side said: "It was nice to win, score three goals and keep a clean sheet.
"We needed a high tempo start and got it and then Kevin produced a superb strike at the end."
Watford's chief Ray Lewington said: "Gillingham gambled on everything at the start and we knew that they couldn't keep it up.
"We are keeping our feet firmly on the ground and know that we will have defeats. Today I thought that if we had scored one we would go on to get a second, but their goalkeeper was the man of the match and I think he played very well."