The Hornets were a goal and a man to the good before Eden Hazard levelled things up late on, but they regained their lead two minutes later through star man Gerard Deulofeu and then added two more goals.
A second heavy defeat in the space of a week for the defending champions, with the other also coming by a three-goal margin at home to Bournemouth, leaves manager Antonio Conte under real pressure as his men are stuck on two wins from 10 in 2018.
Watford made two changes from their last outing and the shift to a three-man defence appeared to catch Chelsea out, as the Hornets dominated the first-half proceedings prior to opening the scoring.
Top scorer Abdoulaye Doucoure dragged a shot wide and the lively Deulofeu picked out the side-netting in the early stages of his first home outing for the club.
Chances then came and went at either end in quick succession, with Troy Deeney getting his close-range volley all wrong when left unmarked from a corner, before Willian blasted high and wide from a promising position.
Then came a key moment in the game with half an hour played, as referee Mike Dean showed a second yellow card to Tiemoue Bakayoko - five minutes after his first - following a slightly late challenge on Richarlison.
Willian, clearly not fully fit after being rushed back from injury, was sacrificed following Bakayoko's dismissal in place of Cesc Fabregas.
The change in personnel did not help change the flow of the game, though, and Watford - with the worst home record in the league prior to tonight - had a deserved lead before the interval.
Deulofeu used his pace to latch on to a through-ball and was brought down by Thibaut Courtois, allowing Deeney to convert the penalty to the stationary Belgian's right.
Watford have dropped 16 points from winning positions this season, however, the most of any side in the division, and they failed to truly push on in the early stages of the second half.
Richarlison and Deulofeu looked to get some momentum going as the hour mark approach, each sending caressed shots narrowly wide of Courtois's goal.
Olivier Giroud was summoned with 25 minutes of the contest to play for his Chelsea debut, but even with his presence up top the home side were looking the more lively in the attacking third for large parts.
A big stop from Courtois denied Doucoure an eighth league goal of the campaign, while Jose Holebas was also kept out by the Chelsea keeper, and that looked to prove a pivotal moment in the match.
Watford were punished from dropping too deep as Hazard, moments after seeing teammate Fabregas denied after teeing him up, curled a sensational shot past Orestis Karnezis from more than 20 yards.
The division's joint-second best defensive unit would ship three goals in an incredible finale, though, taking the tally of goals scored in this fixture to 18 in three matches.
Daryl Janmaat exchanged passes with substitute Roberto Pereyra and tucked the ball past Courtois for his side's second of the night, before Deulofeu bagged the goal his performance deserved by leading and finishing off a swift counter.
Pereyra rounded off the scoring in added time by delaying his shot and then smashing the ball past Courtois into the far side of the net, leaving opposition boss Conte with yet more questions to answer.
WATFORD (3-4-3): Karnezis; Mariappa, Prodl, Holebas; Janmaat, Doucoure, Capoue, Zeegelaar; Deulofeu (Carrillo 89'), Deeney (Gray 93'), Richarlison (Pereyra 65')
CHELSEA (3-4-3): Courtois; Azpilicueta, David Luiz, Cahill; Moses, Bakayoko, Kante, Zappacosta; Willian (Fabregas 34'), Hazard, Pedro (Giroud 64')