City were reduced to ten men when Lewin Nyatanga was sent off for his second booking, a nasty tackle which saw Henri Lansbury stretchered off.
It was the first red card referee James Linington had shown in 16 matches this season.
The home side had twice been in front without ever looking secure and have now won only once in ten games.
Three of the goals came in a nine-minute sequence starting in the 38th when Danny Haynes crashed home a right-footed drive for City.
Just before Watford's Heidar Helguson had been ruled offside after netting from a free-kick with the referee ignoring claims the ball had come off a City man.
Any sense of grievance Watford had - and manager Malky Mackay had some in abundance in a running dispute with the fourth official - melted away five minutes after City's goal.
A poor header by left-back Jamie McAllister let in Tom Cleverley for the Hornets' deserved equaliser.
Back came City in the third minute of added time before the break when Paul Hartley bent a 30-yard free-kick into the top of the net as keeper Scott Loach waved a despairing right hand at it.
Putting a disjointed opening half behind them, David Clarkson had an effort ruled out for offside before Loach saved from Nicky Maynard with his foot.
A more spectacular stop came from City's Dean Gerken when he parried Don Cowie's effort away and then pawed away Danny Graham's follow-up in a blur of movement.