Goals from Anton Ferdinand and Marlon Harewood looked to be putting the Hammers on course for a comfortable success, but three minutes from time Tomas Repka caught Heidar Helguson with a stray arm and the Icelandic international stepped up to duly convert the penalty.
Sensing their opportunity to turn the game around, the Hornets piled on the pressure in the closing stages and Walker was first called into action to keep out Ashley Young's curling 30-yard free-kick.
But an even better save followed from the resulting corner when Walker acrobatically tipped Dominic Blizzard's near post header onto his bar.
The game was largely devoid of action until the latter stages of the first half when the Hammers finally began to make some of their possession count.
Elliott Ward had the first decent opening of the match but he completely mis-kicked Matthew Etherington's pull-back from six yards out. Then an excellent save from Alec Chamberlain denied Harewood, before West Ham did go in front when Ferdinand cracked a low left-footed shot past Chamberlain to net his first senior goal.
Hameur Bouazza missed a great chance to equalise just after the restart when he flicked a header wide of the target and Watford continued to press until they conceded a second on 69 minutes when James Chambers was penalised for handball and Harewood clinically tucked away the spot-kick.
The Hammers, buoyed by the news that play-off rivals Reading were heading for defeat at Wigan, seemed to be in firm control until three minutes from time when Repka needlessly gave away the spot-kick.
Then Walker twice excelled to seal the victory.