The hosts made the perfect start to the match, taking the lead after just three minutes. The referee awarded Watford a penalty when Steven Caldwell shoved Matej Vydra inside the box, allowing Almen Abdi to step up and convert.
The Hornets were two up before the 20-minute mark courtesy of Vydra's neat finish after he beat the offside trap having been sent through by Jonathan Hogg.
Neither side could find another goal, however, as the hosts moved into the top five, while Birmingham remain in the relegation zone.
Watford's next match comes against Bradford in the League Cup on Tuesday, while Birmingham will also be taking part in the second round as they travel to Coventry.