The champions looked to be cruising to a seventh straight league win courtesy of goals from Leroy Sane and Riyad Mahrez either side of half time, while Ben Foster was called into a string of fine saves to keep the score down.
The importance of those was heightened when Abdoulaye Doucoure pulled a late goal back for the Hornets, but Pep Guardiola's men withheld the home side's siege in the closing stages to extend their unbeaten start to 15 games.
A City side showing six changes quickly took control of possession, but the first clear sight of goal went the way of Watford when Roberto Pereyra bent his effort wide of the target from inside the area.
The visitors responded with a glorious chance moments later, though, as Sane picked off a square pass on the halfway line and immediately raced through on goal, only to be denied by a brilliant save when one on one with Foster.
The Watford keeper was the star of the first half with a string of sensational stops, and he almost single-handedly kept City at bay in the 19th minute when he thwarted Mahrez from inside the area before recovering to deny first Bernardo Silva and then David Silva from two rebounds.
Ederson was much less busy at the other end and only had to collect a routine Nathaniel Chalobah strike in the opening half-hour, whereas Foster was soon called into action again to prevent Gabriel Jesus from sneaking the ball in at the near post after a smart turn on the byline.
Having been on the back foot from almost the first whistle, Watford suddenly created a gilt-edged chance to break the deadlock against the run of play shortly after the half-hour mark when Doucoure hooked the ball back into the area which Troy Deeney met with a half-volley, but Ederson was alert to make a smart reaction save with his feet.
Deeney would have known the importance of taking such opportunities against the champions, and that was highlighted just eight minutes later as City finally found a way past the inspired form of Foster.
Mahrez's initial delivery to the back post saw Silva fail to divert the ball beyond the keeper, but the Algerian swung in an almost identical pass when it came back to him and this time Sane was at the back post to bundle the ball home with his chest.
The opener was a just reward for City's relentless first-half pressure, but they were in no mood to let up and could have made it two in as many minutes when Mahrez was released down the right channel, only to see Christian Kabasele get back and block his cross towards an unmarked Sane at the back post.
In the end Watford would have been relieved to only go into the break one goal behind, although it took City just six minutes of the second half to double that advantage when Mahrez swept home a low cross from Jesus.
Mahrez was quickly establishing himself as City's most dangerous attacker in the second half and he came close again on the hour mark when his curling strike hit the arm of Kabasele and looped narrowly wide, while replays showed that Kabasele was fortunate not to concede a penalty too.
Moments later Bernardo snatched at a half-chance when the ball fell kindly to him inside the area, and Jesus should have added a third with 20 minutes remaining when he was released through on goal but skewed his finish wide with only Foster to beat.
Watford did show one or two glimpses of still being alive in the contest, creating a few half-chances before their goal back with Isaac Success curling one effort off target and sending a header straight at Ederson before Doucoure forced another routine stop from the Man City keeper.
There had been nothing routine about Foster's performance, though, and he made another good save to keep the score down when he parried Mahrez's curling effort away from goal with eight minutes remaining.
Foster's heroics looked to be all the more important when the hosts pulled a goal back against the run of play with five minutes remaining as Doucoure bundled the ball home from close range after seeing an initial effort blocked on the line by Kyle Walker - the first goal City had conceded in the final half-hour of a game this season and only the second they had let in on the road in 2018-19.
Watford had a glorious chance to complete an unlikely comeback too as Deeney rose to meet a corner moments later, but Ederson plucked his goalbound header out of the air and City ultimately held on for yet another victory.
The result means that City have now equalled their club record of 14 consecutive away games without defeat in the top flight, while they are now unbeaten in their last 21 Premier League outings including seven wins in a row.
Watford, meanwhile, have fallen to three straight defeats for the first time under Javi Gracia and now have their worst points tally after 15 games of any of the seasons since their latest promotion to the Premier League, having picked up just one point from the last 15 on offer.
City next take on Chelsea at Stamford Bridge on Saturday, whereas Watford will face Everton at Goodison Park.
WATFORD (4-5-1): Foster; Femenia, Kabasele, Cathcart, Holebas; Success (Gray 73'), Hughes (Quina 52'), Chalobah (Deulofeu 63'), Doucoure; Pereyra; Deeney
MAN CITY (4-3-3): Ederson; Walker, Stones, Kompany (Otamendi 83'), Delph; Bernardo, Fernandinho, Silva (Gundogan 73'); Mahrez, Jesus (Laporte 89'), Sane